In a talk given on October 19, Carolyn Wilkins, a Bank of England Financial Policy Committee member, stated that the lack of regulation and good governance within the crypto sector is not only a problem for businesses but also a threat to users. She said that Decentralized finance (DeFi), would be a great place to get things in order.
Wilkins, speaking at the University College London Centre for Blockchain Technologies said that crypto is the main concern when it comes to scamming. Wilkins said that investors are concerned about reputational risks as well as financial risk.
UCL CBT hosted today’s talk by Carolyn Wilkins @wilkinscarolyna titled ‘#governance in #decentralized Finance: Stand up!’ For more information, visit https://t.co/G5ie2who1y pic.twitter.com/b9colxbUdx
— UCL CBT October 19, 2022 (@uclcbt).
Wilkins saw DeFi’s concentration of power in “whales,” in DeFi, as a source for risk. She observed that the top 50 validators of Proof-of-Stake platforms ranked by market capitalization hold between 47% to 100% of stakes. There is also a lack transparency regarding accountability. This tension can be seen in the Ooki USA case. Wilkins said:
“We live in an uncertain world. This means that there is no set of smart contracts that can be used in every situation. Centralised decision-making will be required when something unexpected occurs.
However, it isn’t always obvious when centralized decision-making is necessary or who will do it. As traditional financial institutions are adopting blockchain technology, crypto needs to be ready quickly. They may also want some of the crypto sector’s market share. Wilkins said:
“Regulated financial institutions are applying blockchain technology more frequently to traditional capital markets. They will be better positioned to capture this market, even if the crypto sector does not clean its house. This is due to their more experienced and battle-tested governance.
Wilkins cited JPMorgan’s Onyx Blockchain Trading Network and the HQLAX Collateral Management Platform as examples of the threat.
Related: JPMorgan is the first major bank to enter the metaverse
Wilkins stated that regulators are taking action, even though they may not be acting quickly enough, and that the industry can assist. She suggested “industry-led mechanisms to develop codes of conduct, best practices,” code audits on a regular basis and disclosure of who and how rights to modify the code were determined.