Welcome to Crypto Long & Short, our institutional newsletter. This week, we focus on the need to safeguard the individuals and teams building DeFi infrastructure.
Jennifer Rosenthal, chief communications officer at the DeFi Education Fund, highlights the growing importance of protecting open-source, permissionless, and programmable technologies that are set to revolutionize 21st-century finance. The DeFi Education Fund invites traditional finance companies and new market participants to join in defending key policy objectives that will ensure the long-term viability of DeFi. Recent discussions with Congressional leaders have shown a willingness to engage in constructive dialogue about legislation that supports neutral, decentralized technologies.
For instance, the Promoting Innovation in Blockchain Development Act aims to protect software developers from misclassification under criminal code, emphasizing the distinction between those who write code and those who control customer assets. Meanwhile, Alexis Sirkia, chairman and co-founder of Yellow Network, critiques Ethereum's Layer 2 scaling approach, arguing that the rollup model was flawed from the start due to its focus on throughput rather than the movement of value between participants. This has led to fragmentation and the concentration of liquidity in a few large rollups, making the system vulnerable to exploits. Sirkia proposes state channels as a more robust solution, enabling peer-to-peer transactions off-chain with the base layer serving as an enforcement mechanism.
This approach could provide the necessary scalability and security for the absorption of a significant share of the $14 trillion in offshore derivatives volume into regulated venues. The week's headlines and chart of the week further underscore the challenges faced by the DeFi sector, including the impact of smart contract exploits on market share and the need for resilient infrastructure.