Shielding DeFi Infrastructure Builders

Welcome to Crypto Long & Short, our institutional newsletter. This week, we focus on two key topics: protecting the people building DeFi infrastructure and the shortcomings of Ethereum's L2 strategy. Jennifer Rosenthal, chief communications officer at the DeFi Education Fund, highlights the need to protect the architects of DeFi, emphasizing the importance of preserving the technology and infrastructure that underpin its value. Rosenthal notes that traditional finance companies are increasingly embracing DeFi-related initiatives, recognizing the potential of open-source, permissionless, and programmable technology to upgrade the financial system. The DeFi Education Fund, a nonpartisan nonprofit organization, is working to defend high-level policy objectives, including software developer protections. For instance, the Promoting Innovation in Blockchain Development Act of 2026 aims to shield software developers from misclassification under criminal code Section 1960, clarifying that this section applies only to those controlling customer assets. Meanwhile, Alexis Sirkia, chairman and co-founder of Yellow Network, argues that Ethereum's scaling problem was never about throughput but rather about how value moves between participants. Sirkia contends that the rollup model, designed to address congestion, has instead led to the fragmentation of Ethereum, with dozens of isolated liquidity pools unable to interact without bridge infrastructure. This has resulted in significant losses due to bridge exploits, with $2.5 billion lost since 2021. Sirkia proposes state channels as an alternative, allowing participants to transact peer-to-peer off-chain, with the base layer serving as the enforcement mechanism. This approach eliminates the need for intermediaries, reducing the risk of exploits. As the crypto landscape continues to evolve, it is crucial to address these fundamental issues to ensure the long-term viability and security of DeFi infrastructure.