Safeguarding DeFi Infrastructure Builders

Welcome to our institutional newsletter. This week, we focus on the need to safeguard the people behind DeFi infrastructure. Traditional finance companies are increasingly embracing DeFi, recognizing its potential to revolutionize 21st-century finance. However, it's crucial to protect the technology and infrastructure that make DeFi valuable. We've been engaging in bipartisan discussions with Congressional leaders to build legislation that understands neutral, decentralized technology. A key topic is software developer protections, as most industry participants agree that protecting DeFi builders is essential. The Promoting Innovation in Blockchain Development Act aims to clarify that Section 1960 applies only to those controlling customer assets, providing legal clarity and protecting innovation. Meanwhile, Ethereum's L2 strategy is facing challenges due to a fundamental design flaw, with rollups fragmenting the network instead of scaling it. The rollup model was designed to address congestion but has produced isolated liquidity pools that can't interact without bridge infrastructure, leading to fragmentation and security risks. State channels offer an alternative, allowing peer-to-peer transactions off-chain and eliminating the need for intermediaries. As the market shifts towards regulated venues, infrastructure that can settle cross-chain in real-time without custodial chokepoints is necessary. The failure of rollups to deliver a unified scale is a sign that the market is recognizing the importance of trust and security in DeFi infrastructure.