A new legislative framework from the legal team behind Polygon Labs suggests that neutral, decentralised finance (DeFi) protocols should be classified as “critical infrastructure” and governed by federal cybersecurity agencies in the United States.
Rebecca Rettig and Katja Gilman of Polygon Labs, along with Michael Mosier, co-founder of the emergent technology law firm Arktouros, released a conceptual framework on Jan 29 for addressing illicit financial activities within the realm of Decentralized Finance.
The 45-page document proposes classifying genuinely decentralized DeFi protocols as essential infrastructure, subject to supervision by the U.S. Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP).
The OCCIP, while not being an official financial regulator, plays a pivotal role in orchestrating the Treasury Department’s initiatives aimed at fortifying the security and resilience of critical infrastructure within the financial services sector, with a focus on mitigating operational risks.
It collaborates closely with financial institutions, industry associations, and government collaborators to exchange information on cybersecurity, threats, and vulnerabilities.
Critical Transmitters: A Novel DeFi Legal Paradigm
Nevertheless, the document highlighted that not all decentralized finance (DeFi) protocols exhibit true decentralization; some display notable centralization points, warranting consideration for adherence to existing financial regulations.
At the same time, the team has suggested the establishment of a novel classification termed “critical communications transmitters.” These transmitters would engage with and play a crucial role within authentic DeFi systems, forming an integral component of the proposed legal framework.
These entities should assume specific customized responsibilities to safeguard U.S. national and economic security, all while avoiding classification as ‘financial institutions’ under the Bank Secrecy Act, according to the suggestion.
The suggested framework has also delineated centralized finance or TradFi as distinct entities, each possessing autonomous control guided by the U.S. Treasury’s Financial Crimes Enforcement Network.
The authors emphasized the need to balance the imperative of curbing illicit activities with the crucial and foundational objective of fostering positive endeavors. This aligns with the Treasury’s core mandate of promoting economic prosperity and safeguarding the financial security of the United States.
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