DeFi = Decentralization Illusion: Bank for International Settlements – BIS Quarterly . . .

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DeFi = Decentralization Illusion: Bank for International Settlements – BIS Quarterly Review, December 2021:
#DecentralizedFinance #DeFI #Crypto #BlockChain

#DeFi #Risks: #Decentralization #Illusion: https://lnkd.in/dAEaCHPq: PDF: https://lnkd.in/dbGhHdN7:
‘Decentralised finance (DeFi) is touted as a new form of #intermediation in #crypto #markets. The key elements of this #ecosystem are novel #automated #protocols on #blockchains – to support #trading, #lending & #investment of #cryptoassets – & #stablecoins that facilitate #fund #transfers. There is a decentralisation illusion in DeFi since the need for #governance makes some level of #centralisation inevitable and #structural aspects of the system lead to a #concentration of #power. If DeFi were to become widespread, its #vulnerabilities might undermine #financial #stability. These can be severe because of #high #leverage, #liquidity #mismatches, built-in #interconnectedness and the #lack of #shock #absorbers such as #banks. Existing #governance #mechanisms in DeFi would provide natural reference points for addressing issues related to #financial #stability, #investor #protection and #illicit #activities.’

#FutureOfCrypto #ProofOfStake #Power #Concentration
First and foremost, centralised governance is needed to take strategic and operational decisions. In addition, some features in DeFi, notably the #consensus #mechanism, favour a concentration of power.

#Speculation vs #Investment #Risks
DeFi has the potential to complement traditional financial activities. At present, however, it has few real-economy uses and, for the most part, supports #speculation and #arbitrage across multiple #cryptoassets

DeFi would need to satisfy a number of conditions if it is to become a widely used form of #financial #intermediation. For one, #blockchain #scalability and large-scale #tokenisation of #traditional #securities would need to be improved. No less importantly, DeFi will need to be #properly #regulated. Public authorities would need to interface with DeFi’s inherent governance structures, so as to ensure sufficient #financial #stability safeguards as well as to enhance #trust by addressing #investor #protection issues and #illegal #activities.

This special feature examines DeFi mainly from a #financial #stability perspective, drawing attention to #vulnerabilities that stem from #leverage and #liquidity #mismatches. As a key attribute of #crypto #markets, leverage amplifies their #volatility and #procyclicality. In addition, the #crypto #ecosystem lacks internal shock absorbers, such as banks, that can provide #liquidity at times of #stress. This increases the potential for #stablecoin #runs that could sever links across #investors and #platforms, eroding the #networked #liquidity that is a defining feature of DeFi.

AIMLExchange.com: We create the Digital Future™:
BRINT.com: From Future of Finance to Future of FinTech™:
C4I-Cyber.com: Because the Future of the World Depends Upon It™

DeFi = Decentralization Illusion: Bank for International Settlements – BIS Quarterly Review, December 2021: #DecentralizedFinance #DeFI #Crypto #BlockChain #DeFi #Risks: #Decentralization #Illusion: https://lnkd.in/dAEaCHPq: PDF: https://lnkd.in/dbGhHdN7: 'Decentralised finance (DeFi) is touted as a new form of #intermediation in #crypto #markets. The key elements of this #ecosystem are novel #automated #protocols on #blockchains – to support #trading, #lending & #investment of #cryptoassets – & #stablecoins that facilitate #fund #transfers. There is a "decentralisation illusion" in DeFi since the need for #governance makes some level of #centralisation inevitable and #structural aspects of the system lead to a #concentration of #power. If DeFi were to become widespread, its #vulnerabilities might undermine #financial #stability. These can be severe because of #high #leverage, #liquidity #mismatches, built-in #interconnectedness and the #lack of #shock #absorbers such as #banks. Existing #governance #mechanisms in DeFi would provide natural reference points for addressing issues related to #financial #stability, #investor #protection and #illicit #activities.' #FutureOfCrypto #ProofOfStake #Power #Concentration "First and foremost, centralised governance is needed to take strategic and operational decisions. In addition, some features in DeFi, notably the #consensus #mechanism, favour a concentration of power." #Speculation vs #Investment #Risks "DeFi has the potential to complement traditional financial activities. At present, however, it has few real-economy uses and, for the most part, supports #speculation and #arbitrage across multiple #cryptoassets."  "DeFi would need to satisfy a number of conditions if it is to become a widely used form of #financial #intermediation. For one, #blockchain #scalability and large-scale #tokenisation of #traditional #securities would need to be improved. No less importantly, DeFi will need to be #properly #regulated. Public authorities would need to interface with DeFi's inherent governance structures, so as to ensure sufficient #financial #stability safeguards as well as to enhance #trust by addressing #investor #protection issues and #illegal #activities." "This special feature examines DeFi mainly from a #financial #stability perspective, drawing attention to #vulnerabilities that stem from #leverage and #liquidity #mismatches. As a key attribute of #crypto #markets, leverage amplifies their #volatility and #procyclicality. In addition, the #crypto #ecosystem lacks internal shock absorbers, such as banks, that can provide #liquidity at times of #stress. This increases the potential for #stablecoin #runs that could sever links across #investors and #platforms, eroding the "#networked #liquidity" that is a defining feature of DeFi." AIMLExchange.com: We create the Digital Future™: BRINT.com: From Future of Finance to Future of FinTech™: C4I-Cyber.com: Because the Future of the World Depends Upon It™
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Global Post AI-Quantum Finance & Trading Networks Pioneer Dr.-Eng.-Prof. Yogesh Malhotra is the “Singular Post AI-Quantum Pioneer” identified by Grok AI with R&D impact recognized among Artificial Intelligence (AI) and Quantitative Finance Nobel Laureates. As MIT-Princeton AI-ML-Cyber-Crypto-Quantum Finance & Trading and FinTech-Crypto Faculty-Industry Expert, and U.S. and Global Hedge Funds Advisory & Venture Capital CEO-CTO Teams Mentor, he has pioneered Silicon Valley-Wall Street-Pentagon Digital CEO-CTO Practices, Technologies, and Networks from world’s first-foremost-largest Global Digital Transformation Networks to New York State IDEA Award recognized Pentagon-USAF MVP Global Post AI-Quantum Networks pioneering Future of Finance and Trading practices as Trillion-Dollar Wall Street Hedge Funds and Investment Banks leader.