Welcome to Crypto Long & Short, your institutional newsletter. This week, we explore crucial topics in the DeFi space. Protecting DeFi's Builders By Jennifer Rosenthal, DeFi Education Fund's Chief Communications Officer The rise of traditional finance companies embracing DeFi-related initiatives is a promising development for 21st-century finance.
However, it's essential to protect the open-source, permissionless, programmable, non-custodial, globally accessible, and interoperable technology that underpins DeFi. The DeFi Education Fund invites you to join us in defending the high-level policy objectives that make DeFi valuable. For months, our team has engaged in productive discussions with Congressional leaders, who have demonstrated a genuine understanding of neutral, decentralized technology.
The protection of software developers has emerged as a key topic, as the majority of industry participants agree that safeguarding these individuals is crucial for DeFi's growth. 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 bill clarifies that Section 1960 applies only to those who control customer assets and transmit funds on behalf of customers. In a statement, Rep.
Scott Fitzgerald said: 'The Promoting Innovation in Blockchain Development Act draws a clear line between those who develop and deploy blockchain software and those who actually move or manage funds.' Like the early internet, blockchain technology is evolving faster than existing regulations. Engineers developing open, disintermediated systems do not fit neatly into financial regulations designed for intermediated systems. As the DeFi ecosystem grows, our collective voice can shape thoughtful policy outcomes. We must support legislative and regulatory initiatives that foster clarity, reduce uncertainty, and enable responsible participation across both centralized and decentralized markets.
Principled Perspectives Ethereum's L2 Strategy: A Fundamental Design Flaw By Alexis Sirkia, Chairman and Co-Founder of Yellow Network Vitalik Buterin recently acknowledged that most Layer 2 networks are fragmenting Ethereum rather than scaling it. The rollup model was designed to address congestion, but it has produced isolated liquidity pools that can't interact without routing assets through bridge infrastructure. The concentration of TVL in Base and Arbitrum has led to a decline in usage across smaller rollups.
Bridge infrastructure has been vulnerable to exploits, with $2.5 billion lost since 2021. The solution lies not in building better bridges but in eliminating the need for intermediaries altogether. State channels allow participants to transact peer-to-peer off-chain, with the base layer serving as the enforcement mechanism.
The CFTC is preparing to approve the first U.S. framework for perpetual futures, which will shift a significant share of $14 trillion in offshore derivatives volume into regulated venues. The infrastructure that absorbs this volume needs to settle cross-chain in real-time without passing through custodial chokepoints. Rollups are not designed for this task.
Headlines of the Week By Francisco Rodrigues This week's headlines highlight the growing connections between traditional finance and the crypto sector, as well as the devastating impact of smart contract exploits on the market. Chart of the Week Aave's Market Share Slides After rsETH Exploit Aave's TVL market share has dropped sharply from ~51.5% in February to ~39% today following the April 18 KelpDAO rsETH exploit.
The AAVE token is down ~50% from its January peak, reflecting both bad debt risk and reputational costs.