DeFi Could Be Classified As Critical Infrastructure Going Forward

A suggested regulatory framework was recently put forth by the Polygon Labs legal team, advocating for classifying neutral and decentralized finance protocols as critical infrastructure. The proposal recommends federal cybersecurity agencies oversee these protocols in the United States. The conceptual framework was authored by Rebecca Rettig and Katja Gilman via Polygon Labs, along with Michael Mosier, the co-founder of the emergent technology law firm Arktouros.

The Role Of OCCIP

In the 45-page document, the authors propose categorizing genuinely decentralized DeFi protocols as critical infrastructure, subject to oversight by the U.S. Treasury Office of Cybersecurity and Critical Infrastructure Protection (OCCIP).

While not an official financial regulator, OCCIP coordinates efforts within the Treasury Department to enhance security and resilience in the critical infrastructure of the financial services sector, aiming to reduce operational risk. The framework highlights that not all DeFi protocols are fully decentralized, and those with notable centralization aspects should adhere to existing financial regulations. The framework also states that amid global imperatives to combat illicit activities, it is crucial to uphold the broader goal of empowering positive endeavors.

Comprehending The Framework

The proposed framework also introduces the concept of critical communications transmitters, forming an integral part of genuine DeFi systems. These entities would need to fulfill specific obligations to safeguard U.S. national and economic security, without falling under the classification of financial institutions subject to the Bank Secrecy Act (BSA).

Additionally, the framework distinguishes centralized and traditional finance as separate entities, each with independent control, guided by recommendations given by the Financial Crimes Enforcement Network (FinCEN). Jake Chervinsky, a crypto industry lawyer, emphasized that policy discussions in Washington DC prioritize concerns about illicit finance over other aspects of the digital asset industry, considering this proposal a potential step toward a viable solution.