Polygon Labs Execs Outline Regulatory Framework to Combat Illicit Activity in Defi

A paper ready by two Polygon Labs executives and a former Financial Crimes Enforcement Network (FinCEN) director presents a framework to fight illicit exercise in decentralized finance (defi) markets. The doc proposes three totally different lessons for defi platforms, together with platforms managed by centralized actors, real defi programs, and demanding communication transmitters, describing the extent of oversight each ought to face.

Polygon Labs Execs Propose Defi Regulation Framework

Alternative views on tips on how to regulate and management decentralized finance (defi) platforms are surging. A paper titled “Genuine DeFi as Critical Infrastructure: A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance” describes a brand new method wherein illicit exercise may be monitored and managed within the defi world.

The paper, authored by Polygon Labs CLO Rebecca Rettig, former appearing director of the Financial Crimes Enforcement Network (FinCEN) Michael Mosier, and Polygon Labs Senior Public Policy Lead Katja Gilman, goals to start out a dialogue on one of the best ways to control defi programs, contemplating that these escape regulations designed for different centralized buildings.

The report proposes to categorise these platforms into three totally different classes. The first would come with all of the platforms that, whereas categorized as defi, rely on centralized actors and are decentralized in title solely. These are described to be extra more likely to be topic to regulation relying on a case-by-case evaluation.

The second class could be composed of decentralized programs (“genuine defi”) that might be categorized as important infrastructure beneath the oversight of the Treasury Department’s Office of Cybersecurity and Critical Infrastructure Protection (“OCCIP”).

Rettig, Mossier, and Gilman stress that “genuine defi should not be designated as ‘financial institutions;’ and ‘critical infrastructure’ is wholly separate and apart from this concept.”

Finally, the third class encompasses companies that work together with “genuine defi” programs however that aren’t monetary establishments, like RPC node suppliers, who could be grouped beneath the classification of “critical communications transmitters.” These would have some obligations however could be excluded from complying with Bank Secrecy Act (BSA) determinations.

“Constructive dialogue is the best way to move the industry forward, and we look forward to developing these concepts further with industry and government collaboration,” Rettig concluded.

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