Welcome to Crypto Long & Short, our institutional newsletter. This week, we focus on the need to safeguard the people behind DeFi infrastructure. Expert Insights: Protecting DeFi Infrastructure Builders By Jennifer Rosenthal, Chief Communications Officer, DeFi Education Fund The growth of traditional finance companies embracing DeFi-related initiatives is a promising development for 21st-century finance.
However, it's crucial to protect the technology and infrastructure that make DeFi valuable. We've been engaged in bipartisan discussions with Congressional leaders to build legislation that understands neutral, decentralized technology.
Protecting software developers is a key topic, as they are essential to 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. This bill clarifies that Section 1960 applies only to those controlling customer assets and transmitting funds on behalf of customers. Blockchain technology is evolving rapidly, and engineers developing open, disintermediated systems don't fit into existing financial regulations.
We should support legislative and regulatory initiatives that foster clarity, reduce uncertainty, and enable responsible participation in both centralized and decentralized markets. Principled Perspectives: Ethereum's Scaling Problem By Alexis Sirkia, Chairman and Co-Founder, 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 produced isolated liquidity pools that can't interact without routing assets through bridge infrastructure.
This has led to the concentration of liquidity and the collapse of smaller rollups. The industry's response to bridge exploits has been to build better bridges, but this approach is flawed. The vulnerability lies in the premise that value needs to pass through an intermediary. State channels eliminate this premise, allowing 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 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, by design, are not suitable 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 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 following the April 18 KelpDAO rsETH exploit, which froze rsETH markets and triggered deposit withdrawals. The AAVE token is down ~50% from its January peak, reflecting both bad debt risk and reputational costs.