The legal team from Polygon Labs, including Rebecca Rettig and Katja Gilman, along with Michael Mosier from Arktouros law firm, have proposed a new regulatory framework for decentralized finance (DeFi) in the United States. This proposal was detailed in their publication, “A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance,” released on January 29.
The 45-page document suggests that genuinely decentralized DeFi protocols should be classified as “critical infrastructure.” This designation would place them under the oversight of the U.S. Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP). The OCCIP, while not a financial regulator, plays a crucial role in enhancing the security and resilience of the financial sector’s critical infrastructure and in reducing operational risks. It collaborates with financial firms, industry groups, and government partners to exchange information on cybersecurity and related threats.
The paper emphasizes that not all DeFi protocols are fully decentralized. Those with significant centralization should be regulated under existing financial laws.
Additionally, the proposal includes the creation of a new category termed “critical communications transmitters.” These entities, integral to genuine DeFi systems, would be required to fulfill specific obligations aimed at protecting U.S. national and economic security. However, they would not be classified as “financial institutions” under the Bank Secrecy Act.
The framework distinguishes traditional finance (TradFi) as a separate entity, which should be independently regulated based on guidelines from the U.S. Treasury’s Financial Crimes Enforcement Network.
Crypto industry lawyer Jake Chervinsky commented on a social media platform, highlighting that while securities and commodities laws often dominate digital asset policy discussions, Washington, D.C. policymakers are more concerned about illicit finance. He views this proposal as a potential beginning to a real solution.
The authors of the proposal stress the importance of balancing the need to prevent illicit activities with the goal of empowering positive developments in the financial sector. They underscore the Treasury’s mandate of promoting economic prosperity and ensuring the financial security of the United States, emphasizing that regulation should not stifle beneficial innovation.
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