Oct. 29, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule "Safeguarding Advisory Client Assets." While I acknowledge the goal of enhancing investor protections and addressing gaps in the current custody rule, I believe that certain aspects of the proposed rule may have negative implications for decentralized finance (DeFi) and the growth of digital assets, such as cryptocurrencies. As the financial landscape evolves, decentralized finance has emerged as a powerful tool for transforming traditional financial systems. By leveraging blockchain technology, DeFi projects are fostering innovation and potential financial inclusion. However, the proposed rules have the potential to hinder the growth and development of DeFi, limiting opportunities for both investors and innovators. One specific concern is regarding the application of the rule to digital assets or cryptocurrencies. Digital assets have proven to be a disruptive force in the financial industry, introducing possibilities for efficiency, transparency, and accessibility. However, regulatory uncertainties surrounding digital assets have posed significant challenges for market participants. As the rule proposes to address the safeguarding of client assets, it is crucial to consider the unique nature of digital assets and their custody. The decentralized nature of blockchain technology, on which many digital assets are built, provides a level of resilience and security not found in traditional systems. By applying traditional custody requirements to digital assets, the proposed rule may impose burdensome compliance obligations on DeFi projects, potentially stifling innovation and hindering the progress of this promising sector. Moreover, the rule should take into account the challenges involved in demonstrating exclusive control over digital assets. While traditional custody arrangements involve centralized institutions, digital assets custody often relies on smart contracts and decentralized networks. These mechanisms ensure security and traceability but may pose difficulties in meeting traditional custody standards. It is essential for the rule to accommodate the unique attributes and challenges of digital asset custody while still ensuring adequate investor protections. To encourage the growth of DeFi and digital assets, I urge the Securities and Exchange Commission to carefully consider the potential negative impacts of the proposed rule. The regulatory framework should strike a balance between safeguarding investor assets and fostering innovation. Furthermore, given the rapidly evolving nature of the digital asset space, any regulations should be adaptable and future-proof. Collaboration and ongoing dialogue between the regulatory authorities and industry stakeholders will aid in the development of appropriate and effective regulatory measures to support both investor protections and innovation. Thank you for considering my concerns regarding the proposed rule. I believe that, with careful deliberation and an open mindset, the SEC can create a regulatory environment that fosters the growth of decentralized finance and digital assets while maintaining investor protection. Sincerely, Hayden Roche