BIS took a stand on DeFi
As part of a quarterly market review, the Bank for International Settlements published the text DeFi risks and the decentralisation illusion.
In the opinion of the authors of that publication, decentralised finance (DeFi) has the potential to complement traditional financial activities. At present, it has few uses – for the most part, it supports speculation and arbitrage across multiple cryptoassets.
The authors also argue that full decentralisation in DeFi is an illusion. In their view, some form of DeFi centralisation is inevitable as centralised governance is needed to take strategic and operational decisions. In addition – in the authors’ opinion – smart contracts behind DeFi are unable to cover all possible eventualities, e.g. in terms of cooperation of a particular DeFi with third parties. It has also been pointed out that certain features of DeFi blockchains (notably the consensus mechanism) favour the concentration of power in the hands of large investors.
In spite of reservations, the authors think that DeFi may become a widely used form of financial intermediation. This would require some changes. For one, blockchain scalability and tokenisation of securities would need to be improved. DeFi would also need to be properly regulated, and the entities themselves – covered by supervision.
