Polygon Labs' Legal Team Proposes New Regulatory Blueprint for U.S. DeFi Protocols
Summary:
Polygon Labs' legal team has proposed a new regulatory framework suggesting that decentralized finance (DeFi) protocols should be considered as "critical infrastructure" and should be supervised by US federal cybersecurity agencies. The proposal advocates for the U.S. Treasury's Office of Cybersecurity and Critical Infrastructure Protection to oversee genuinely decentralized DeFi protocols. It also recommends the creation of "critical communications transmitters," a new category of entities that interact with authentic DeFi systems and are integral to them. The proposal differentiates between centralized and decentralized finance and suggests that the ones with substantial centralization should follow existing financial regulations.
Polygon Labs' legal team has recently proposed a regulatory structure arguing that numerous US federal cybersecurity agencies should manage "critical infrastructure" of decentralized finance (DeFi) protocols. Rebecca Rettig, Katja Gilman from Polygon Labs, and Michael Mosier, co-founder of Arktouros, a law firm focusing on emergent technology, co-authored this regulatory framework titled "A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance" released on January 29. The details of this 45-page comprehensive proposal recommend the U.S. Treasury's Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) to spearhead oversight of genuinely decentralized DeFi protocols, labeling them as critical infrastructure.
The OCCIP, while not an official fiscal regulator, concentrates on amplifying the security and resilience of the vital infrastructure within the financial realm, as well as mitigating the operational risk. The organization collaborates on information related to cybersecurity, threats, and vulnerabilities with financial entities, industry conglomerates, and government associates. The authors emphasized the fact that not all DeFi protocols are totally decentralized. Those with substantial centralization elements should comply with existing financial rules, according to the manuscript.
As part of this fresh legal infrastructure, the authors suggested the formulation of a novel class of entities named "critical communications transmitters". These entities have substantial interaction with authentic DeFi systems and are critical to them, and would have to fulfill specific obligations to bolster the national and economic defense of the U.S without transforming into "financial institutions" under the Bank Secrecy Act.
Lastly, the regulatory concept differentiated between centralized finance (CeFi) or traditional finance (TradFi) which operate independently under the US Treasury's Financial Crimes Enforcement Network (FinCEN) jurisdiction. Cryptocurrency legal expert Jake Chervinsky observed that policy discussions on digital assets frequently revolve around securities and commodities law. However, in U.S capital Washington, politicians are majorly concerned about illicit finance. He lauded the authors' initiative as the commencement of a possible solution. The authors concluded by asserting that "we ought to prioritize enabling beneficial activities, thus promoting the economic prosperity and financial security of the US" while tackling illicit activities.
Published At
1/30/2024 8:02:34 AM
Disclaimer: Algoine does not endorse any content or product on this page. Readers should conduct their own research before taking any actions related to the asset, company, or any information in this article and assume full responsibility for their decisions. This article should not be considered as investment advice. Our news is prepared with AI support.
Do you suspect this content may be misleading, incomplete, or inappropriate in any way, requiring modification or removal?
We appreciate your report.