Subject: S7-04-23: Webform Comments from Nathan Daniel Espinosa
From: Nathan Daniel Espinosa
Affiliation:

Oct. 31, 2023

Re: Safeguarding Advisory Client Assets, File No. 

Dear Securities and Exchange Commission,

I am writing to provide my professional perspective on the proposed
rule "Safeguarding Advisory Client Assets." As an accountant
and business lawyer with experience in the financial industry, I have
concerns about certain aspects of the proposed rule and their
potential impact on small businesses and startups, as well as the
overall competitiveness of the digital asset industry.

Firstly, while I understand the need for enhanced investor protections
and the goal of addressing gaps in the custody rule, it is crucial to
carefully consider the extraterritorial application of the proposed
regulations. The digital asset market operates on a global scale, and
excessive reporting requirements for protocols operating outside the
United States and users located abroad may hinder international
commerce and impede the growth of the industry. Striking the right
balance between regulatory oversight and fostering cross-border
innovation and growth is essential.

Secondly, I would like to emphasize the potential burden placed on
small entities, particularly startups, by the proposed rules. The
digital asset industry is characterized by innovation and a rapidly
evolving landscape, making it imperative to consider the unique
challenges faced by small businesses. The complex reporting
requirements and compliance costs associated with the proposed
regulations may present a significant barrier to entry and stifle
competition. This could ultimately limit the availability of
innovative services and solutions, thus having a detrimental effect on
investors.

Furthermore, it is essential to consider the impact of the proposed
rule on capital formation. By imposing substantial compliance costs on
investment advisers and qualified custodians, there is a risk of
diverting resources away from investment and capital formation
activities. Small businesses and startups, in particular, may find it
challenging to allocate sufficient capital towards growth and
innovation if a significant portion is dedicated to compliance. It is
crucial to strike the right balance between investor protections and
regulatory requirements that facilitate capital formation and
entrepreneurial activity.

In conclusion, while the goal of enhancing investor protections and
addressing gaps in the custody rule is commendable, it is crucial to
consider the potential unintended consequences of the proposed rule.
As a professional in the financial industry, I urge the Securities and
Exchange Commission to carefully evaluate the burden imposed on small
businesses and startups, as well as the potential impact on
international commerce. By striking a balance between regulatory
oversight and fostering innovation and growth, we can achieve
effective investor protection while ensuring a competitive and vibrant
digital asset industry.

Thank you for considering my comments. I appreciate the opportunity to
provide my professional perspective and contribute to the rulemaking
process. If you require any additional information or would like to
discuss my concerns further, please do not hesitate to contact me.

Sincerely,

Nathan Espinosa 

Additional comment:

I am writing to respectfully submit my public comment on the proposed
rule on Safeguarding Advisory Client Assets. I appreciate the
SEC's efforts to enhance investor protections and address gaps in
the custody rule. However, I have several concerns regarding the
proposed rule that I believe warrant further consideration and
clarification.

One of my concerns lies in the insufficient consideration of
multi-signature wallets for custody of digital assets. These wallets
provide an additional layer of security by requiring multiple
parties' approval for transactions to be executed. They have
gained widespread adoption and are deemed essential in safeguarding
digital assets. Unfortunately, the proposed rules do not adequately
consider the use of multi-signature wallets and their potential
benefits. Given the increasing prevalence of digital assets, it is
crucial for the SEC to recognize and account for these industry
practices.

Moreover, one of the significant issues I have identified in the
proposed rule is the presence of poorly defined terms. The use of
undefined terms such as "platform," "software,"
and "ledger" leaves room for multiple interpretations and
can lead to confusion and inconsistency in enforcement. Furthermore,
the definitions provided for terms like "wallet" and
"validator" do not align with their commonly understood
technical meaning. It is imperative that the SEC provides clear and
comprehensive definitions for all terms used in the proposed rule to
ensure consistent interpretation and application.

In addition to these specific concerns, I am also worried about the
broader implications of the proposed rule. As a concerned citizen, it
is my belief that America should lead and take charge in the world.
However, the proposed rule falls short in demonstrating our commitment
to innovation and progress. By not fully embracing the potential of
multi-signature wallets and failing to provide clear definitions, we
risk hindering the adoption of secure custody practices and impeding
technological advancements in the industry. It is crucial for the SEC
to seize this opportunity to lead the way and set an example for other
jurisdictions.

In conclusion, I urge the SEC to revisit and address the concerns
raised regarding the proposed rule on Safeguarding Advisory Client
Assets. Giving due consideration to multi-signature wallets, defining
terms clearly, and demonstrating leadership in the field of asset
custody will contribute to investor confidence and the continued
growth of the industry. It is my sincere hope that the SEC remains
committed to protecting investors while fostering innovation and
maintaining America's position as a global leader.

Thank you for the opportunity to provide my input on this important
matter.

Sincerely,

Nathan Espinosa