The legal team at Polygon Labs has put forth a proposal for a new regulatory framework targeting the DeFi sector. Their approach calls for neutral, decentralized finance protocols to be recognized as critical infrastructure, warranting oversight by U.S. federal cybersecurity bodies. This proposal is part of an ongoing conversation within the cryptocurrency community regarding the legal regulation of the market.
Significant Step from Polygon Labs Team
Polygon Labs’ legal experts, in collaboration with technology law firm Arktouros, have presented a comprehensive paper advocating for decentralized DeFi protocols to be classified as critical infrastructure. This classification would place them under the regulatory purview of the Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) within the U.S. Treasury, aiming to combat illegal financial activities in the DeFi space.
The OCCIP, while not a financial regulatory agency, plays a pivotal role in fortifying the security and resilience of the financial sector’s infrastructure. It collaborates with various stakeholders to mitigate risks and address cybersecurity concerns. The paper from Polygon Labs underscores the distinction between truly decentralized DeFi protocols and those with centralization aspects, suggesting that the latter should adhere to existing financial regulations.
The Polygon Labs team has also proposed the creation of a new entity category known as critical communication transmitters. These entities would engage directly with DeFi systems, bearing special responsibilities to safeguard U.S. national and economic security, without being classified as financial institutions under the Bank Secrecy Act.
Furthermore, the framework delineates centralized finance (CeFi) and traditional finance (TradFi) as separate entities with their own regulatory oversight. The proposal aims to balance the need to prevent illegal activities with the Treasury’s core objective of fostering economic prosperity and financial security in the United States.
