DeFi Ecosystem Should Be U.S. Critical Infrastructure

Polygon Labs lawyers proposed classifying the decentralized finance (DeFi) ecosystem as critical infrastructure and giving regulatory authority to the U.S. Treasury’s Office of Cybersecurity and Crucial Infrastructure Protection (OCCIP).

Rebecca Rettig, Chief Legal & Policy Officer at Polygon Labs, Michael Mosier, Co-Founder of law firm Arktouros, and Katja Gilman, Sr. Public Policy Lead at Polygon Labs, published a document insisting that DeFi protocols should be classified as critical infrastructure.

They argue that a truly decentralized financial ecosystem should be legally considered crucial infrastructure, like electricity, pipelines, or communication lines, because it serves vital public and business needs. The regulation of the DeFi ecosystem must be handed over to the U.S. Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP).

The document’s authors underlined that not all DeFi protocols are truly decentralized, as some ecosystem players have centralization points. They should be subject to the control 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).

U.S. financial regulators are competing for the right to regulate the crypto market.

According to the document’s authors, regulators should create a new legal category of “critical communications transmitters.” This category should include all non-financial institutions that interact with decentralized ecosystems. Moreover, creating several tailored obligations for organizations falling under the new classification is necessary. They will help protect the national and economic security of the United States without being subject to the Bank Secrecy Act.

The authors also highlighted the U.S. authorities’ focus on combating the use of digital assets in illegal financial transactions, while ignoring the need to preserve opportunities for developing relevant technologies and infrastructure. The proposed legal approach could effectively detect, deter, and prevent illegal financial activities in the DeFi sector without destroying the decentralized financial infrastructure and violating users’ rights.

The International Organization of Securities Commissions (IOSCO) developed recommendations for uniform regulation of the DeFi ecosystem across different jurisdictions.

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