The legal team behind Polygon Labs, including Rebecca Rettig, Katja Gilman, and Michael Mosier, co-founder of the law firm Arktouros, has introduced a new regulatory framework proposing that truly decentralized decentralized finance (DeFi) protocols be designated as "critical infrastructure" and regulated by U.S. federal cybersecurity agencies. The framework, outlined in a 45-page paper titled “A Conceptual Framework for Combating Illicit Financial Activities in Decentralized Finance,” recommends overseeing these protocols through the U.S. Treasury Department’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP). The OCCIP focuses on enhancing the security and resilience of critical infrastructure in the financial services sector.
While advocating for the designation of truly decentralized DeFi protocols as critical infrastructure, the paper acknowledges that not all DeFi protocols are fully decentralized, and those with significant points of centralization should be subject to existing financial regulations. The proposed framework also introduces a new category termed “critical communication transmitters,” seen as entities that interact with and integrate into authentic DeFi systems. According to the paper, these entities should adhere to specific obligations aimed at safeguarding U.S. national and economic security without being classified as “financial institutions” subject to the Bank Secrecy Act.
Additionally, the legal framework designates centralized finance, or TradFi, as an independent category subject to separate controls under the guidance of the U.S. Treasury Department’s Financial Crimes Enforcement Network. The authors of the paper recognize that policymakers in Washington, D.C., prioritize concerns about illicit finance, and they believe their proposed framework could initiate tangible solutions. Despite emphasizing the urgency of combating illegal activities, the authors stress the importance of not losing sight of the fundamental goal of empowering positive activities. They align this with the Treasury Department’s mission to promote economic prosperity and ensure the financial security of the United States.
