Safeguarding the Architects of DeFi Infrastructure

Welcome to Crypto Long & Short, our institutional newsletter. This week, we delve into the necessity of safeguarding the creators of DeFi infrastructure. Alexandra Levis shares expert insights, followed by Jennifer Rosenthal, Chief Communications Officer at the DeFi Education Fund, who emphasizes the importance of protecting the people building DeFi. The DeFi Education Fund, a nonpartisan nonprofit, invites traditional finance companies to join in defending the technology and infrastructure that underpin DeFi's value. Key policy objectives include protecting software developers from misclassification under criminal code. For instance, the Promoting Innovation in Blockchain Development Act aims to clarify that Section 1960 applies only to those controlling customer assets, aligning with congressional intent and the Treasury Department's interpretation. Rep. Scott Fitzgerald notes that this act provides legal clarity, protects innovation, and allows law enforcement to focus on genuine criminal activity. Blockchain technology, like the early internet, is evolving faster than existing regulations, and engineers developing open systems do not fit neatly into financial regulations designed for intermediated systems. As individuals and companies interact with decentralized infrastructure, collective support for legislative and regulatory initiatives can shape thoughtful policy outcomes. Alexis Sirkia, Chairman and Co-founder of Yellow Network, discusses Ethereum's scaling problem, arguing that the rollup model was flawed from the start, addressing congestion but producing isolated liquidity pools. State channels, on the other hand, allow participants to transact peer-to-peer off-chain, with the base layer serving as the enforcement mechanism. This approach rejects the premise that value needs to pass through an intermediary. The CFTC's approval of the first U.S. framework for perpetual futures will shift a significant share of offshore derivatives volume into regulated venues, necessitating infrastructure that can settle cross-chain in real-time without custodial chokepoints. Rollups, by design, are not suited for this task. The market is starting to recognize that the real constraint was trust at the intermediary layer, and infrastructure eliminating this layer will attract capital and builders.