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Federal Reserve Chairman Jerome Powell says decentralized finance (defi) has “very significant structural problems” and underscores a “real need” for more appropriate regulation of the defi ecosystem.
Federal Reserve Chairman Jerome Powell spoke about the regulation of decentralized finance (defi) on Tuesday during a panel discussion on digital finance hosted by the Banque of France.
“The monetary policy normalization that we’re seeing around the world,” Powell began. “All it did was simply expose what we have long pointed to as significant structural problems in the defi ecosystem and conflicts of interest.” He emphasized:
Within the defi ecosystem, there are these very significant structural issues around transparency – lack of transparency.
“The good news, I guess, is that … from a financial stability standpoint, the interaction between the defi ecosystem and the traditional banking system and the traditional financial system is not that big at this point. So we could witness the winter of defi. It had not significant effects on the banking system and broader financial stability, Powell said.
“That’s a good thing,” he exclaimed. “I think it shows the weaknesses and the work that needs to be done around regulation carefully and thoughtfully, and gives us some time.”
However, the Federal Reserve chairman warned that the situation he just described “will not persist indefinitely.” He clarified that “Ultimately, it’s not a stable equilibrium and we have to be very careful about … how crypto activities are taken within the regulatory perimeter,” elaborating:
In any case… there is a real need for more appropriate regulation, so that appropriate regulation is in place as defi expands and begins to affect more and more private customers.
Christine Lagarde, the President of the European Central Bank (ECB), and Agustín Carstens, Managing Director of the Bank for International Settlements (BIS) also took part in the discussion. Both agreed with Powell and similarly emphasized the importance of properly regulating the defi ecosystem.
What do you think of Fed Chairman Jerome Powell’s comments on defi regulation? Let us know in the comments section below.
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