Oct. 31, 2023
To the Securities and Exchange Commission, I am writing to share my views on the proposed rule “Safeguarding Advisory Client Assets” and how it may affect the Decentralized Finance (DeFi) platforms that use digital assets and cryptocurrencies. As the financial industry evolves, it is important that the regulations keep up with the innovation and the development of decentralized financial systems. One of my main concerns is about the future of DeFi. DeFi is a term that describes the use of blockchain technology and smart contracts to provide financial services without intermediaries. It has the potential to transform traditional finance by enhancing transparency, accessibility, and inclusivity. DeFi allows users to have full control over their assets and to interact directly with financial applications. It also enables the creation of innovative solutions that reduce counterparty risk and foster a more inclusive financial system for people around the world. However, the proposed rule could unintentionally limit the growth of DeFi and potentially exclude the United States from this amazing new technology, by imposing complex regulatory requirements on investment advisers who deal with digital assets. Smart contracts, which are the core of DeFi applications, are programmable contracts that automatically execute actions when certain conditions are met. They can facilitate the custody and movement of assets without the need for traditional intermediaries. The complex nature of smart contracts, and the unique challenges they pose when it comes to custody and control requirements, must be considered before applying regulations that may hinder the proper functioning of DeFi in the United States. I appreciate the need for regulatory clarity in the fast-changing field of digital assets, and I applaud the SEC’s initiative to address the application of the rule to crypto assets. However, I urge you to carefully consider the possible unintended consequences of these proposed regulations on the development of DeFi and its Decentralized Financial Applications (dApps). Strict regulatory burdens could discourage participation in DeFi platforms and impede the progress of innovation. For DeFi to achieve its full potential, it is essential that regulatory frameworks support experimentation and foster a supportive environment for technological advancements. By allowing flexibility and offering regulatory clarity that is tailored to the unique characteristics of DeFi as well as its dApps, the SEC can support the responsible growth of the digital asset ecosystem while still safeguarding investors. I strongly encourage the SEC to consider alternative approaches in such a way that it balances investor protection and innovation. Direct communication must be established between regulators, industry participants and innovators to promote the creation of a regulatory framework that ensures the protection of client’s assets without suppressing the growth of promising, wonderful technologies that stand up for global inclusion, immutability, and decentralization. Some examples are: Ethereum, Pulsechain, PulseX and Hex. Thank you for considering my views. I appreciate your commitment to seeking public input, and I trust that you will thoroughly evaluate the potential impact of the proposed rule on the development of decentralized financial systems, its dApps as well as the different types of crypto assets that exist. Sincerely, Luis Naveda