Genuine DeFi as Critical Infrastructure: A Conceptual Framework for Combating Illicit Finance Activity in Decentralized Finance
Rebecca Rettig, Michael Mosier, Katja Gilman · Journal of Financial Regulation · 2025
Abstract Combating illicit financial activity in permissionless blockchain-based financial systems—referred to as ‘decentralized finance’ or ‘DeFi’—has challenged regulators and policymakers. Traditional financial integrity laws and regulations—dealing with anti-money laundering (AML), countering the financing of terrorism (CFT), and sanctions—attach to intermediaries, including, with respect to AML/CFT obligations, those intermediaries the Bank Secrecy Act defines as ‘financial institutions’. This article proposes a framework to effectively detect, deter, and prevent illicit financial activity in DeFi, while preserving the technology as permissionless, neutral infrastructure. The three-part proposal sets forth a definition of ‘independent control’ in order to identify smart contract-based financial protocols that do not constitute DeFi; seeks to classify genuine DeFi protocols as ‘critical infrastructure’, subject to oversight and security coordination by the Treasury Department’s Office of Cybersecurity and Critical Infrastructure Protection; and suggests that new laws could require certain businesses necessary to the transmittal of communications about DeFi transactions to take on additional illicit finance risk-management practices without being subject to the Bank Secrecy Act.