Safeguarding DeFi Infrastructure Builders

Welcome to Crypto Long & Short, our institutional newsletter. This week, we focus on the need to safeguard the developers of decentralized finance infrastructure. As traditional finance companies increasingly adopt DeFi technologies, it's crucial to protect the people driving this innovation. Jennifer Rosenthal, chief communications officer at the DeFi Education Fund, highlights key policy objectives worth defending, including software developer protections. Recently, the bipartisan Promoting Innovation in Blockchain Development Act was introduced to protect software developers from misclassification under criminal code. Meanwhile, Alexis Sirkia, chairman and co-founder of Yellow Network, comments on Ethereum's Layer 2 strategy, arguing that the rollup model was flawed from the start, as it attempted to address congestion by creating parallel execution environments. This approach has led to fragmentation, with most Layer 2 networks capturing a significant portion of the total value locked, while smaller rollups decline. Sirkia suggests that state channels, which enable peer-to-peer transactions off-chain, could provide a more effective solution. The industry is shifting, with the CFTC preparing to approve the first U.S. framework for perpetual futures, which will bring a significant share of offshore derivatives volume into regulated venues. As the market evolves, it's essential to prioritize trust and security, eliminating intermediaries and custodial chokepoints. This week's headlines also highlight the growing connections between traditional finance and the crypto sector, as well as the devastating impact of smart contract exploits on the market.