Welcome to Crypto Long & Short, our institutional newsletter. This week, we delve into the crucial topic of safeguarding the people behind DeFi infrastructure. Jennifer Rosenthal, chief communications officer at the DeFi Education Fund, highlights the need to protect these individuals, emphasizing that traditional finance companies are increasingly embracing DeFi technologies.
A key aspect of this protection involves defending high-level policy objectives, such as software developer protections, which have been a topic of discussion in recent market structure and crypto policy talks. The Promoting Innovation in Blockchain Development Act, introduced by Representatives Scott Fitzgerald, Ben Cline, and Zoe Lofgren, aims to protect software developers from misclassification under criminal code by clarifying that Section 1960 applies only to those controlling customer assets.
Meanwhile, Alexis Sirkia, chairman and co-founder of Yellow Network, comments on Ethereum's Layer 2 strategy, suggesting it is flawed due to a fundamental design issue. He argues that the rollup model, designed to address congestion, has instead led to fragmentation and the concentration of liquidity in a few large rollups, with the long tail collapsing and capital fragmenting further. Sirkia proposes state channels as an alternative, enabling peer-to-peer transactions off-chain and reducing the need for intermediaries.
The newsletter also touches on the CFTC's preparation to approve the first U.S. framework for perpetual futures, which could significantly impact the derivatives market, and highlights the importance of infrastructure that can settle cross-chain transactions in real-time without custodial chokepoints.