Federal Reserve Chairman: DeFi Needs Appropriate Regulation Before Expanding.

• Decentralized Finance (DeFi) is a tool within the blockchain ecosystem.
• It offers financial instruments without a centralized entity.

Jerome Powell, United States Federal Reserve chairman has talked about the expansion of DeFi and the impact it has on traditional finance ecosystem. He also recognized that DeFi will start to reach more retail customers and there is the need for regulation.

On September 27 the event “Opportunities and challenges of the tokenisation of finance”  was hosted by the Banque de France, Jerome Powell was present and said that there were;

very significant structural issues around the lack of transparency in the DeFi ecosystem.

Agustín Carstens, General Manager for Bank for International Settlements (BIS), also showed concerns over the contrast between DeFi and traditional finance. He pointed out that the challenge that bankers and regulators face is that the DeFi and crypto sector is global and borderless as well.

Powell admitted that the interaction between the banking system and DeFi has not been significant from a financial stability point of view, limiting the impacts of the “DeFi winter.” Nevertheless, it has demonstrated the weaknesses and work that needs to be done around regulation, he added.

We need to be very careful about how crypto activities are taken within the regulatory perimeter, where ever they take place […] there is a real need for more appropriate regulation.

Powell explained that as DeFi expands and starts to reach more retail customers appropriate regulations need to be put in place. Despite the current market stagnation he is confident that DeFi will see a great deal of growth in the future.

According to DeFiLlama the total-value locked (TVL) has fallen 71% from its December all-time high to around $62 billion. The decline is in line with that of cryptocurrency markets which have gone down by a similar percentage. Many crypto asset firms have embraced Biden’s administration’s efforts for a regulatory framework for crypto.

However, the wheels of bureaucracy turn slowly in the United States, and there is likely to be a lot of contemplation before anything is said and set. The Federal Reserve chairman, Powell also spoke about  a U.S. central bank digital currency saying it should be launched and would not be anonymous.