Welcome to Crypto Long & Short, our institutional newsletter. This week, we focus on two key topics: - The need to safeguard the people building DeFi infrastructure, as discussed by Jennifer Rosenthal, chief communications officer at the DeFi Education Fund. - An analysis by Alexis Sirkia, chairman and co-founder of Yellow Network, on why Ethereum's L2 strategy is flawed due to a fundamental design issue.
Protecting DeFi Infrastructure Builders By Jennifer Rosenthal The growing involvement of traditional finance companies in DeFi initiatives is a positive development, as it acknowledges the potential of open-source, permissionless, programmable, non-custodial, globally accessible, and interoperable technology to revolutionize 21st-century finance. However, it is crucial to protect the individuals and teams building this infrastructure. Recent discussions with Congressional leaders have highlighted the importance of software developer protections.
The Promoting Innovation in Blockchain Development Act of 2026, introduced by Representatives Scott Fitzgerald, Ben Cline, and Zoe Lofgren, aims to protect software developers from misclassification under criminal code Section 1960. This legislation clarifies that Section 1960 applies only to those controlling customer assets and transmitting funds on behalf of customers, aligning with congressional intent and the Treasury Department's long-standing regulatory interpretation.
As the DeFi ecosystem evolves, it is essential to support legislative and regulatory initiatives that promote clarity, reduce uncertainty, and enable responsible participation in both centralized and decentralized markets. Ethereum's Scaling Problem By Alexis Sirkia Vitalik Buterin's acknowledgment that most Layer 2 networks are fragmenting Ethereum rather than scaling it is a significant admission. The rollup model, designed to address congestion, has created isolated liquidity pools that cannot interact without routing assets through bridge infrastructure.
This has resulted in a concentration of liquidity, with Base and Arbitrum capturing 77% of all L2 DeFi TVL, while usage across smaller rollups has declined. Bridge infrastructure has been exploited, with $2.5 billion lost since 2021.
The solution lies in state channels, which allow participants to transact peer-to-peer off-chain, with the base layer serving as the enforcement mechanism. This approach eliminates the need for intermediaries and provides a more secure and scalable solution. As the CFTC prepares to approve the first U.S.
framework for perpetual futures, the need for infrastructure that can settle cross-chain, in real-time, without passing through custodial chokepoints becomes increasingly important. Rollups, by design, are not suited for this task.
The market is beginning to recognize that the real constraint in Ethereum's scaling is not throughput but trust at the intermediary layer. The infrastructure that eliminates this layer entirely is where capital and builders will migrate.