The Bank of International Settlements Criticizes Crypto and DeFi
The Bank of International Settlements (BIS) has released a report stating that while the technology behind cryptocurrency works, it is flawed due to the underlying incentives of validators. The BIS argues that crypto is not suitable to play a significant role in the international monetary system. Here are the key points from the report:
1. Divergence between decentralized vision and reality: The BIS points out that the crypto sector operates under the banner of decentralization, but in practice, new centralized intermediaries have played a key role. The 2022 implosion of the FTX crypto exchange is given as an example.
2. Replicating innovations in traditional finance: The report suggests that innovations such as programmability and automation of financial transactions can be replicated or embedded in the traditional finance system, which is considered safer and more trusted.
3. Criticism of DeFi: The BIS criticizes the decentralized finance sector, calling it “self-referential” and claiming that it simply copies services offered by the traditional financial system. It argues that DeFi amplifies risks without contributing to the real economy.
4. Tokenization as a potential solution: The report suggests that tokenization of real-world assets could be a way for traditional finance and crypto to work together. This could lead to the growth of crypto as new money is channeled into tokenized assets.
5. Increasing interconnectedness and threats to monetary sovereignty: The BIS warns that as crypto becomes more interconnected with traditional finance and the real economy, it may pose a threat to monetary sovereignty.
Hot Take
The BIS report highlights the flaws and limitations of crypto and DeFi. While the technology may work, the underlying incentives and centralization in the industry are concerning. The report suggests that traditional finance can replicate the innovations of crypto, making it a more trusted option. However, the BIS also acknowledges the potential for growth through the tokenization of assets. Overall, the report raises important questions about the role of crypto in the international monetary system and the risks it poses.
By
By
By
By
By
By