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Lawyers from Polygon Labs have suggested that the decentralized finance (DeFi) ecosystem be recognized as critical infrastructure, proposing that regulatory oversight be assigned to the U.S. Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP).
Rebecca Rettig, Chief Legal & Policy Officer at Polygon Labs, Michael Mosier, Co-Founder of the law firm Arktouros, and Katja Gilman, Senior Public Policy Lead at Polygon Labs, have released a document advocating for the classification of DeFi protocols as critical infrastructure.
They contend that a genuinely decentralized financial ecosystem ought to be legally recognized as essential infrastructure, akin to electricity, pipelines, or communication networks, due to its role in fulfilling significant public and business requirements. Oversight of the DeFi ecosystem should be transferred to the U.S. Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP).
The authors of the document emphasized that not every DeFi protocol is entirely decentralized, as certain participants within the ecosystem exhibit points of centralization. These should fall under the jurisdiction of financial regulators such as the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), or the Office of Foreign Assets Control (OFAC).
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The authors propose that regulators establish a new legal category termed “critical communications transmitters.” This category should encompass all non-financial entities that engage with decentralized ecosystems. Additionally, it is essential to create specific obligations for organizations classified under this new designation. These measures would aid in safeguarding the national and economic security of the United States while remaining exempt from the Bank Secrecy Act.
The authors also pointed out that U.S. authorities are concentrating on addressing the use of digital assets in illicit financial activities, while overlooking the importance of fostering the development of relevant technologies and infrastructure. The suggested legal framework could effectively identify, deter, and prevent unlawful financial conduct within the DeFi sector without undermining the decentralized financial infrastructure or infringing on users’ rights.
The International Organization of Securities Commissions (IOSCO) has formulated recommendations for consistent regulation of the DeFi ecosystem across various jurisdictions.
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