Oct. 30, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I understand the need to enhance investor protections and address gaps in the custody rule, I believe that some aspects of the proposal may have unintended consequences that hinder the growth and development of decentralized finance (DeFi) and stifle innovation in the digital assets space. In particular, I am concerned that the broadened scope of the rule, particularly as it relates to digital assets and cryptocurrencies, may have a detrimental impact on the DeFi ecosystem. DeFi projects, which leverage blockchain technology and smart contracts, have the potential to revolutionize traditional finance by increasing access, fostering financial inclusion, and reducing reliance on centralized intermediaries. However, regulatory uncertainties can impede the progress of these projects and limit their potential to disrupt the status quo. One of the core principles of DeFi is decentralization, where users have control over their own assets without the need for traditional custodians. By expanding the rule to include digital assets, there is a risk that it may impose burdensome requirements on DeFi projects that operate outside the scope of traditional custody. This could have a chilling effect on innovation, discouraging entrepreneurs from pursuing projects that are pushing the boundaries of financial technology. Furthermore, the challenge of demonstrating exclusive control over crypto assets, as mentioned in the proposal, is a valid concern. The unique nature of blockchain technology, with its distributed ledger and decentralized consensus mechanisms, poses inherent difficulties in proving custody in the traditional sense. Imposing rigid requirements that do not take into account the nuances of digital assets may inadvertently inhibit the growth of this emerging sector. In addition to considering the potential negative impact on DeFi, I highly encourage the SEC to take into account the global nature of digital assets. The fragmented and rapidly evolving regulatory landscape for cryptocurrencies and blockchain technology underscores the need for a coordinated approach that ensures investor protection without stifling innovation. It is crucial that any regulations are crafted in a manner that preserves the advantages offered by digital assets while addressing legitimate concerns such as market manipulation and fraud. I applaud the SEC's efforts to enhance client protections and improve oversight and risk assessment abilities in the advisory industry. Nonetheless, I urge the SEC to carefully consider the potential unintended consequences that the proposed rule may have on the DeFi ecosystem and digital asset innovation. It is crucial to strike a balance between investor protection and fostering an environment conducive to technological advancements. Thank you for considering my comments on this important matter. Sincerely, Ellis Morgan