Legal Experts Propose Classifying DeFi Protocols as Critical Infrastructure
In a new regulatory framework, experts from Polygon Labs and Arktouros have recommended that truly decentralized DeFi protocols be classified as “critical infrastructure.” The goal is to combat illicit financial activities in the DeFi space and enhance financial services sector security.
Proposal to Place DeFi Protocols under Federal Oversight
This classification would allow DeFi and its protocols to be overseen by federal cybersecurity agencies in the US. The 45-page document, titled “A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance,” suggests designating these protocols as critical infrastructure and extending the oversight of the US Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) to include DeFi.
Identifying Truly Decentralized Protocols
The document acknowledges that not all DeFi protocols are truly decentralized. The proposal suggests subjecting protocols with significant centralization to existing financial regulations. It also introduces the concept of “critical communications transmitters” as a new category for truly decentralized DeFi systems that must fulfill certain obligations to protect the US’ national and economic security.
Highlighting the Proposal’s Significance
Crypto industry lawyer Jake Chervinksy points out the importance of the proposal in addressing policymakers’ concerns about illicit finance. He believes this could be the beginning of a real solution and highlights the importance of empowering legitimate activities in the DeFi sector.
“Huge drop today in the crypto industry, the policy conversation is often dominated by headlines about the securities and commodities laws. But in DC, policymakers are much more concerned about illicit finance than anything else. This could be the start of a real solution.”
The proposal aligns with the Treasury’s mandate to promote economic prosperity and financial security in the US.
Hot Take: DeFi Protocols Should Be Regulated as Critical Infrastructure
A new regulatory framework from Polygon Labs and Arktouros suggests classifying truly decentralized DeFi protocols as critical infrastructure. This classification would enable federal oversight by cybersecurity agencies, enhancing the security and resilience of the financial services sector. The proposal aims to combat illicit financial activities in DeFi and empower legitimate activities within the sector. By designating certain obligations for protocols under a new category called “critical communications transmitters,” the proposal seeks to protect the national and economic security of the US. This significant proposal could mark the start of a real solution in addressing policymakers’ concerns about illicit finance.
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