Top Central Bankers Agree Appropriate DeFi Regulation Is Necessary

Defi Regulation

The world’s top central bankers, Jerome Powell of the United States Federal Reserve Chairman, Christine Lagarde the President of the European Central Bank (ECB), and Agustín Carstens, the General Manager of the Bank for International Settlements (BIS) are looking into regulating decentralized finance (DeFi). During a panel discussion on digital finance hosted by  Banque de France, the attendees shared and tackled their views on DeFi. They acknowledged and urge that broader DeFi regulation is essentially needed.

Structural Issues Are Driving DeFi Regulation

As stated by Powell, from the perspective of financial stability, the relationship between the DeFi ecosystem and traditional banking and financial system was not substantial at this time. However, Powell emphasized that there were “very significant structural issues around the lack of transparency” in the DeFi ecosystem. He also mentioned that should a U.S. central bank digital currency (CBDC) be launched, it would not be anonymous and would include identity verification for users.

Meanwhile, Carstens stated that DeFi is primarily about self-referencing transactions that aren’t tied to real-life transactions and its applications rely on collateralized arrangements. He also pointed out that the “exchange houses”, which do too many things simultaneously, lack proper segregation,  accountability, and appropriate governance are a major problem. 

Furthermore, he said that DeFi is not equipped to handle risks like liquidity, counterparty, and leverage. Since DeFi applications facilitate borrowing, lending, and trading to different intermediaries. Carstens underlined that the huge challenge facing central bankers and regulators is that the DeFi and crypto are global and borderless.

Crypto Activities Must Operate Within Regulatory Perimeter

Powell recognized that DeFi is reaching more retail customers and as DeFi expands, he highlighted that regulations are indeed necessary to protect consumers. He said careful considerations must be taken on how these crypto activities operate within the regulatory perimeter.

Lagarde expressed cryptocurrency as an enigmatic phenomenon. She elaborated that it evolved from being a cultural hype advocated by Satoshi Nakamoto and pushed by libertarians to becoming an instrument that is accepted by PayPal, Visa, and Mastercard.

As DeFi rise as one of the fastest-growing sectors in the crypto space, the world’s top central bankers, have expressed their concerns and agreed that DeFi regulation is crucial in the evolving global financial system.

Basil Kimathi

Basil Kimathi

Basil is an avid fan of blockchain technology and all its innovations and is passionate about sharing this narrative with his audience. He boosts over four years within the crypto space specializing in research and creating fintech content for various media outlets around the globe. His work has been published on top websites such as usethebitcoin.com, European Blockchain Convention, BTCpeers, coinjournal.net, coinlist.me, and many others. When not thinking about disruptive technologies, Basil is busy exploring the outdoors. You can find him on Twitter using the link below. https://twitter.com/basil_kimathi