US Federal Reserve discussion paper takes cold, hard look at DeFi, gives it mixed review

US Federal Reserve discussion paper takes cold, hard look at DeFi, gives it mixed review

According to a discussion paper by the United States Federal Reserve Board dated June, but published Aug. 30, there are over 1,400 DApps currently in operation. Their largest host is Ethereum with 470 (or 31%) of them. The authors stated that although these Decentralized Finance (DeFi) products are a small part of the global financial system, they could still pose risks for financial stability.

According to the paper, the cumulative gross value of DeFi products varied from $78 billion up to $224 billion at beginning of the second quarter 2022. This was dependent on how DeFi was defined. These figures have plummeted dramatically over the past year, as crypto winter swept in. Technological developments are increasing DeFi’s processing power. According to the authors, wholesale investors may be the largest DeFi users.

The paper’s bulk was dedicated to DeFi’s risks and benefits. The authors stated that cryptocurrency volatility is a barrier to DeFi’s growth and that there are no risks to the wider financial system.

“The history of financial crises in the last century has been marked by the ability to create large leveraged positions and conceal trades, as well as the novelty of financial products that allow such leverage.

Many of the insights in the paper show a similar level of cynicism.

Related: Crypto market turmoil highlights the risks of leverage when trading

The authors stated that DeFi’s resistance against censorship is exaggerated. Transparency could be a competitive disadvantage to institutional investors and an invitation to wrongdoing. Retail investors will always remain vulnerable because:

“If crypto is to become a mainstream product then it will be widely used and used by people who are unable to properly assess the economic and programming risks associated with crypto transactions.”

DeFi’s integration with traditional financial markets could also expose the traditional side of the market to risk. “If a user loses transacting through a DeFi dapp, it might be difficult for the user to determine who to sue, but it might not be difficult to identify traditional intermediaries that may bear some legal liability.”

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Amy Jimenez– Services My name is Amy Jimenez, and I am the main writer behind the" allthetopnews.com" for the ground-breaking and most fragile bits of knowledge into the most recent news in the services sector. I began my voyage of work as an autonomous investment advisor. I had around 4 years of involvement in this field. I am a free soul so; my energy for investigating the world has taken me to the countries over the globe and allowed me to report for a part of the best news affiliations. At present, I am a full-time manager as experienced in the account and began to utilize my capacities.

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