DeFi needs to be regulated ‘carefully and thoughtfully,’ says Fed chair Jerome Powell
Federal Reserve Chairman Jerome Powell has urged lawmakers to be cautious when regulating decentralized finance (DeFi). busy At a roundtable hosted by the Banque de France on September 27.
Powell said regulation should be introduced “prudently and thoughtfully” and regulators must do so.
“…be very careful about how cryptographic activities are conducted within regulatory boundaries.”
Chair Powell was joined by European Central Bank President Christine Lagarde, Bank for International Settlements (BIS) General Manager Agustin Carstens and Monetary Authority of Singapore (MAS) Managing Director Ravi Menon. Central bank leaders discussed how central banks can meet the financial stability challenges posed by DeFi.
BIS’s Carstens said DeFi has “structural problems” and “intrinsic weaknesses,” but that doesn’t mean that “the technology behind DeFi is useless.” Therefore, regulators need to find ways to “make good use of them.”
Agreeing with Carstens, Powell said the DeFi ecosystem has “very serious issues with lack of transparency.”
Currently, the links and interactions between DeFi and the traditional financial system are limited, said Powell. Thus, the ongoing cryptocurrency and his DeFi winter did not “materially impact the traditional banking system and broader financial stability.”
he added:
“It shows weaknesses and the work that needs to be done carefully and thoughtfully with regards to regulation and I think it gives us a little bit of time.”
According to Powell, in the future the cryptocurrency market will be large enough to disrupt the stability of financial markets, which is why “better regulation is really needed.” Fed Chair Powell’s cautious approach aligns with California Gov. Gavin Newsom, who vetoed the bill last week, saying crypto regulation needs to be “more flexible” and not “premature.” I am doing it.
Powell said the Federal Reserve would support “responsible innovation,” including crypto-related products. For example, the FedNow service is expected to roll out within a year, he said, Powell. FedNow enables real-time payments through banks.
he added:
“The point of regulation, of course, is to create a level playing field that allows real innovation to reap the benefits while avoiding the pitfalls of regulation evasion.”
According to Powell, the approach to regulating cryptocurrencies should be “same risk, same regulation.” He said many crypto activities are similar to traditional financial activities and carry the same risks and should be similarly regulated.
But when it comes to regulating new crypto activities that introduce new risks, such as replacing intermediaries with smart contracts, Powell said:
“…a lot of work and a lot of consideration needs to be done to determine which practices are acceptable and which are flawed or predatory.”
Powell acknowledged that the technology behind DeFi could bring “improvements and efficiencies” to the financial system. But many of the promised efficiencies are superficial, gained by avoiding regulatory compliance or ignoring risks, he said.
Menon and Lagarde believe stablecoins are “promising” because they think they are different from traditional crypto assets like Bitcoin.
“Central banks are and will continue to be the main source of trust behind money. Stablecoins basically borrow that trust, often from the underlying issuer. “
Powell said the United States is in no rush to issue a central bank digital currency (CBDC). We plan to build public trust by cooperating with Congress and the executive branch, which require approval for issuance.
“We’re looking at it very closely, assessing both policy issues and technology issues, and we’re doing that on a very broad scale.”
