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Emerging Technology, Financial Stability Tuesday, October 11, 2022 |
During an event titled “Opportunities and challenges of the tokenization of finance” hosted by Banque de France, Federal Reserve Chair Jerome Powell said decentralized finance (DeFi) needs “appropriate regulation” before it can achieve mainstream, retail use.
Powell said there were “very significant structural issues around the lack of transparency” in the DeFi ecosystem.
Powell acknowledged that the interaction between DeFi and the banking system has not been significant from a financial stability viewpoint, limiting the impacts of the “DeFi winter” – the recent massive loss in value of most cryptocurrencies. However, it demonstrated the weaknesses and work that needs to be done around regulation.
“We need to be very careful about how crypto activities are taken within the regulatory perimeter, wherever they take place…” Powell said. “There is a real need for more appropriate regulation.”
Powell added that as DeFi expands and starts to touch more retail customers, appropriate regulation needs to be in place. The comments suggest that Powell is confident DeFi will see a great deal of growth in the future despite the current market downturns.
The Fed chair also spoke about a U.S. central bank digital currency, stating that should one be launched, it would not be anonymous and would include identity verification for users.
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