Research Summary
The report discusses a paper proposing a new framework to combat illicit finance in decentralized finance (DeFi). The paper suggests adapting traditional financial regulations to DeFi, defining key actors and proposing new categories of regulated entities. It also proposes classifying DeFi protocols as “critical infrastructure”.
Key Takeaways
Adapting Traditional Financial Regulations to DeFi
- Regulatory Adaptation: The paper proposes that traditional financial regulations should be adapted to DeFi, particularly where identifiable actors perform the same functions as traditional financial intermediaries. This suggests that the regulatory landscape for DeFi could become more similar to that of traditional finance.
Definition of Key Actors in DeFi
- System Control Persons (SCPs): The paper defines SCPs as those who exercise independent control over a system, including the ability to admit, permit, restrict, deny, or modify access. This definition could help clarify the roles and responsibilities of different actors in the DeFi space.
Classification of DeFi Protocols as Critical Infrastructure
- Critical Infrastructure: The paper proposes classifying DeFi protocols as “critical infrastructure”, systems vital to security, the economy, public health, public safety, or any combination thereof. This classification could elevate the importance of DeFi in the eyes of regulators and policymakers.
Proposal for New Category of Regulated Entities
- Critical Communications Transmitters (CCTs): The paper proposes creating a new category of regulated entities, CCTs, which are businesses important for the transmission of user-initiated communications. This proposal could lead to new regulatory responsibilities for certain businesses in the DeFi space.
Contrast with Existing Proposals
- Contrasting Proposals: The report contrasts the paper’s innovative proposal with existing proposals like Senator Elizabeth Warren’s bill, which would ban decentralized finance protocols and mandate intermediation. This highlights the ongoing debate about the best way to regulate DeFi.
Actionable Insights
- Understanding the Proposed Framework: Stakeholders in the DeFi space should familiarize themselves with the proposed framework to understand potential regulatory changes and their implications.
- Assessing the Impact of Regulation: DeFi businesses should assess how the proposed regulations could impact their operations and prepare accordingly.
- Engaging with Policymakers: DeFi stakeholders should engage with policymakers to ensure that any new regulations are fair, effective, and conducive to innovation.
