Proposed Strategy to Classify DeFi as Critical Infrastructure
A recent paper authored by Rebecca Rettig, Katja Gilman, and Michael Mosier proposes classifying decentralized DeFi protocols as critical infrastructure. This would place them under the oversight of the US Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP), which focuses on strengthening security in the financial services sector.
The OCCIP collaborates with various stakeholders to exchange information about cybersecurity risks. The paper suggests that by classifying genuine DeFi systems as critical infrastructure, it would be possible to implement safety measures to address illegal money activities without introducing unnecessary middlemen.
This classification does not automatically make DeFi systems financial institutions regulated by the Bank Secrecy Act (BSA). It aligns with efforts proposed by industry and regulators to establish regulatory measures for neutral software and mitigate risks through cybersecurity standards, information sharing centers, risk indicators, and other tools.
Challenges of Unclear Regulations for DeFi Expansion
DeFi has faced regulatory uncertainty, particularly in the US, leading to a decline in its activity share in North America. The lack of clear accountability within DeFi systems has been highlighted by regulatory bodies like the Commodity Futures Trading Commission (CFTC).
The CFTC has raised concerns about risks such as fraud, market manipulation, conflicts of interest, data breaches, and privacy violations due to a lack of understanding of DeFi. They recommend policymakers undertake mapping exercises to determine if existing regulations cover the financial products and services offered by DeFi projects.
Hot Take: Embracing Regulatory Oversight for DeFi Security
The proposal to classify genuine DeFi systems as critical infrastructure under the oversight of OCCIP offers a potential solution to enhance security and address illegal money activities. By collaborating with regulators, industry associations, and government agencies, the effectiveness of existing cybersecurity frameworks and risk mitigation efforts can be improved.
While regulatory clarity is necessary for DeFi’s expansion, it is crucial to strike a balance that allows innovation while protecting investors and consumers. Establishing clear accountability and understanding the risks within DeFi systems will contribute to a healthier and more sustainable ecosystem.
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