Polygon’s legal team claims decentralized finance (DeFi) protocols must be viewed as ‘crucial infrastructure’ to U.S. economic and federal security.
A recently suggested regulatory model from Polygon Labs’ legal team shows that neutral, decentralized finance (DeFi) protocols must be categorized as ‘critical infrastructure.’ Besides, they must be supervised by the nation’s cybersecurity agencies.
Polygon Framework Combating Illicit Finance
On January 29, a conceptual framework for combat illicit finance within DeFi was published by Katja Gilman and Rebecca Rettig from Polygon Labs and Michael Mosier, the co-founder of Arktouros, an emergent technology law company.
According to this 45-page paper, it would be critical to designate actual DeFi protocols as crucial infrastructure managed by the United States Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP).
Despite the OCCIP not being an official financial regulator, it synchronizes efforts by the Treasury Department to improve the resilience and safety of the critical infrastructure’s financial services sector. Additionally, the coordination minimizes operational risk.
The OCCIP partners with industry groups, finance companies, and government partners to share data concerning threats, susceptibilities, and cybersecurity.
Nevertheless, the paper showed that not all decentralized fiancé protocols are actually decentralized. It also noted that some have considerable centralization points, which subjects them to present financial guidelines.
In the meantime, the team has suggested making a new classification for ‘critical communications transmitters’. The transmitters interact with and are inherent to real decentralized finance systems as part of the latest legal model.
Polygon’s Framework Considers TradFi and CeFi as Autonomous
The paper suggested that the entities would be required to undertake specific custom-made obligations to aid the U.S. economic and national securities without turning to ‘financial institutions’ subject to the Bank Secrecy Act (BSA).
Further, the suggested model recognized TradFi and centralized finance (CeFi) as separate with autonomous control founded on the Financial Crimes Enforcement Network (FinCEN’s) guidance.
On X (formerly Twitter), Jake Chervinsky, a crypto industry attorney, noted that policy discussions concerning the digital asset sector mainly comprise headlines regarding commodities and securities regulations.
Nevertheless, in Washington, DC, legislators are more worried about illegal finance compared to other things. According to Jake, this might be the beginning of an actual solution.
The authors deduced that in the determination to halt illegal activity, people should not forger the critical and central objective to empower good activity. This supports the Treasury’s decree of ‘enhancing economic success and promoting the nation’s financial security.
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