Decentralized Finance for Cryptoassets Based on an Illusion, BIS Says | Invest News


LONDON (Reuters) – Decentralized finance for cryptoassets could undermine financial stability if it gains traction and more collateral is needed, the Bank for International Settlements said in its quarterly review on Monday.

So-called DeFi platforms allow users to lend, borrow and save, typically in the form of cryptoassets and stablecoins, while bypassing traditional and centralized gatekeepers of finance such as banks.

DeFi has the potential to complement traditional financial activities, but it currently has few uses in the real economy and, for the most part, supports speculation and arbitrage across multiple crypto-assets, the BIS said in its review. quarterly.

Limited enforcement of anti-money laundering rules and customer controls, along with anonymity of transactions, exposes DeFi to illegal activity and market manipulation, the Switzerland-based World Central Bank Forum said.

DeFi’s main premise of cutting costs by cutting out middlemen still appears to be realized, the BIS added.

“There is an ‘illusion of decentralization’ in DeFi because the need for governance makes some level of centralization inevitable and structural aspects of the system lead to a concentration of power,” said the BIS.

“If DeFi were to become mainstream, its vulnerabilities could undermine financial stability. “

Large investors have bet heavily on the growth of the sector, the Canadian pension fund Caisse de Dépôt et Placement du Québec having participated in October in a $ 400 million investment in the large loan platform Celsius Network.

(Graphic: DeFi BIS Graphic 1,

If DeFi risks are not well managed, stablecoins are prone to leakage and possible fire sales of the assets that support them could generate funding shocks for businesses and banks, spilling over into the financial system. at large, said the BIS.

“Since DeFi’s main challenges resemble those of traditional finance, established regulatory principles can serve as a compass,” he said.

(Graphic: DeFi BIS Graphic 2,

(Reporting by Huw Jones; Editing by Simon Cameron-Moore)

Copyright 2021 Thomson Reuters.


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