Polygon Labs Seeks to Get DeFi Classified as ‘Critical Infrastructure’

Polygon Labs' proposal spans a total of 45 pages and suggests designating truly decentralized DeFi protocols as critical infrastructure.

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The legal team representing Polygon Labs, the firm behind the Layer-1 blockchain often dubbed the Ethereum killer, has proposed a framework that seeks to classify decentralized finance (DeFi) as “critical infrastructure” and overseen by federal cybersecurity agencies in the United States. 

Rebecca Rettig and Katja Gilman from Polygon Labs and emergent technology law firm Arktouros co-founder Michael Mosier published the proposal called “A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance” on Monday.

Polygon Labs Backs DeFi

The proposal spans a total of 45 pages and suggests designating truly decentralized DeFi protocols as critical infrastructure. These would be overseen by the US Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP), suggests the document. 

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“Genuine DeFi Systems are technological infrastructure underpinning a new approach to conducting financial transactions & given the way in which they function, OCCIP could make meaningful contributions to the safe operation of genuine DeFi Systems,” said Rettig via social media platform X. 

Not all DeFi Protocols are Truly Decentralized

Polygon Labs also pointed out in the document that not all DeFi protocols are truly decentralized, and many have elements of centralization integrated into them. As a result, these protocols should fall under the existing financial regulations. 

It is important to note that the OCCIP is not an official financial regulator but is responsible for coordinating the Treasury Department’s efforts to enhance the security and resilience of the financial services sector’s critical infrastructure. It works closely with finance firms, industry groups, and government partners. 

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New Category of ‘Critical Communications Transmitters’

Polygon Labs also suggested the creation of a new category of “critical communications transmitters” responsible for interacting with and forming an integral part of genuine DeFi systems as part of the new legal framework.

Notably, these entities will have to undertake certain tailored obligations and vow to protect US national and economic security without becoming “financial institutions” subject to the Bank Secrecy Act (BSA). 

“We propose that new laws could require certain biz that are (a) necessary to the transmittal of comms re DeFi tx’s, (b) transmit a material portion of such comms & (c) offer this as a service to take on additional illicit finance risk management practices,” said Rettig.

Polygon Labs Expands into Other Ventures

As earlier reported by TheCoinRise, Polygon Labs recently partnered with Japanese electronic multinational Casio to roll out the virtual version of its product, dubbed G-SHOCK, on the Layer-1 blockchain. 

The firm also confirmed that it would discontinue contributions to its Edge framework and is redirecting its focus towards the expansion of its Cloud Development Kit (CDK).

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