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Legal regulation processes for the cryptocurrency market are still a hot topic of discussion within crypto communities. According to the legal team behind Polygon Labs, a new regulatory framework has been proposed, which suggests that neutral and decentralized finance (DeFi) protocols should be established as critical infrastructure and monitored by federal cybersecurity agencies in the United States.
Significant Step from Polygon Labs Team
Polygon Labs’ Rebecca Rettig and Katja Gilman, along with Michael Mosier, founding partner of the new technology law firm Arktouros, presented a paper titled “A Conceptual Framework for Combating Illegal Financial Activities in the Decentralized Finance Space” to the public on January 29. The 45-page paper suggests that truly decentralized DeFi protocols should be designated as critical infrastructure and be regulated by the Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) of the US Treasury.
OCCIP is not an official financial regulatory agency, but it coordinates efforts to enhance the security and resilience of the financial services sector’s critical infrastructure and reduce operational risk. It works closely with financial firms, industry groups, and government partners to share information about cybersecurity, threats, and vulnerabilities.
However, the document notes that not all DeFi protocols are truly decentralized, and some have significant centralization points, which means they should be subject to existing financial regulations.
Noteworthy Proposals for the Crypto Sector
Meanwhile, the team proposed creating a new category of critical communication transmitters as part of the new legal framework, which would interact with real DeFi systems and become an integral part of these systems. These organizations would be required to take on certain special obligations to help protect US national and economic security without becoming financial institutions subject to the Bank Secrecy Act (BSA).
The proposed framework also defined centralized finance (CeFi) or TradFi separately with independent oversight, based on guidance from FinCEN (Financial Crimes Enforcement Network of the Treasury). Cryptocurrency industry lawyer Jake Chervinsky commented that discussions on crypto asset sector policies at X often revolve around securities and commodities laws.
The authors concluded that in the urgency to stop illegal activities, it is essential not to forget the Treasury’s fundamental goal of strengthening good activities that underpin the promotion of economic prosperity and the financial security of the United States.
