- OCCIP Oversight Proposal: Polygon Labs suggests classifying genuine DeFi as critical infrastructure under OCCIP.
- Collaborative Framework: The proposal aims to foster collaboration between industry and regulators to fortify cybersecurity standards.
- Addressing Regulatory Ambiguity: Amidst regulatory uncertainty, the initiative seeks to provide clarity for the burgeoning DeFi sector.
Regulators’ main point of dispute, worldwide, has been the DeFi regulation. Rebecca Rettig, Katja Gilman from Polygon Labs, and Michael Mosier from Arktouros recently published a paper outlining a plan for categorizing completely decentralized DeFi protocols as vital infrastructure.
They would be governed by the US Treasury’s Office of Cybersecurity and Critical Infrastructure Protection (OCCIP) as a result of this categorization. Despite not being your average financial regulator, the OCCIP is essential to enhancing the security and robustness of vital infrastructure in the financial services industry.
It works along with financial institutions, trade associations, and governmental organizations to share knowledge regarding cybersecurity vulnerabilities and hazards.
Giving DeFi a “Critical Infrastructure” classification
The 45-page study makes the case that safety precautions may be put in place to reduce the possibility of illicit financial activity in DeFi Systems. Rather than imposing intermediaries on legitimate DeFi Systems, it’s like not requiring phone companies to employ switchboard operators once again to verify who is using each phone.
Instead, sincere DeFi need to be regarded as “critical infrastructure” and governed by OCCIP, just how the government manages risks associated with illicit funding in other financial IT systems.
The research explained that true DeFi Systems are not automatically classified as “financial institutions” subject to the Bank Secrecy Act (BSA) only because they are considered “critical infrastructure” under OCCIP. BSA rules do not apply to OCCIP, nor is it restricted to dealing with financial institutions alone.
Furthermore. Legitimate DeFi Systems should be categorized as “critical infrastructure” in accordance with industry and governmental proposals to create guidelines for neutral software. These steps, according to the study, include automating risk indicators, establishing information sharing and analysis centers (ISACs), putting cybersecurity guidelines into practice, and employing additional technologies to reduce risks.
While some of these initiatives—like cybersecurity guidelines and an ISAC—are already in motion in the DeFi sector, cooperation between business and regulators made possible by OCCIP would increase the efficacy of these efforts.
DeFi Expansion Is Hampered by Implicit Regulations
A significant gray area for regulators has been DeFi. Although North America has historically been a major consumer of DeFi, its percentage of activity has lately decreased, mostly as a result of US regulatory uncertainties.
A concern with DeFi systems that certain industry groups purposefully ignore is the absence of unambiguous accountability, as the Commodity Futures Trading Commission (CFTC) pointed out earlier this year. Due in large part to a lack of awareness of DeFi, the agency identified a number of hazards for investors and consumers, including fraud, market manipulation, conflicts of interest, data breaches, and privacy violations.
The CFTC recommended that in order to improve policymakers’ understanding of DeFi, they should determine what is already known and what requires further investigation. They recommended that policymakers do mapping exercises to determine if the financial services and products provided by DeFi initiatives are subject to current US legislation.
Disclaimer: Please note that the viewpoints and perspectives expressed by the author, as well as any individuals referenced in this article, are intended solely for informational purposes. They should not be construed as financial or investment advice. It’s important to acknowledge that investing in or trading cryptoassets carries inherent financial risks.