The Bank for International Settlements, or BIS, a financial institution owned by central banks around the world, released a report analyzing the development of decentralized finance, or DeFi, on Monday. The article begins with the following words: “There is an ‘illusion of decentralization’ in DeFi, because the need for control makes a certain level of centralization inevitable, and structural aspects of the system lead to concentration of power.” And she continued:
“If DeFi becomes widespread, its weaknesses could undermine financial stability. They can be dangerous due to high levels of influence, liquidity disparities, internal interdependence and a lack of shock absorbers such as banks.”
According to BIS, all DeFi protocols have inherent centrality due to their centralized governance structures, similar to legal entities and companies. In addition, some DeFi blockchains concentrate power in the hands of large coin holders or insiders when selling tokens.
Cryptocurrency vs. conventional finance | Source: BIS
The report criticized the high impact gained from DeFi trading and lending platforms as Binance’s margin of over 100x simultaneously. It also emphasizes that the fragility of stack coins, which are characterized by their opacity and lack of regulation, together with liquidity problems and market risk, can lead to investor exodus from the bank, causing them to fall below the required level in a short time. period.
Growth in cryptocurrency activity | Source: BIS
“It currently focuses primarily on speculation, investment and arbitrage in cryptocurrencies, rather than use cases in the real economy,” the report said.
“Overall, it does not appear that the basic DeFi premise of lowering rents received by key resellers has yet been implemented.”