Jerome Powell, the chairman of the US Federal Reserve, has spoken out over the growth of decentralized finance (DeFi) and its effects on the conventional financial environment, urging for appropriate regulation.
Jerome Powell stated that there were “quite serious structural difficulties around the lack of transparency” in the DeFi ecosystem on September 27 during an event titled “Opportunities and Challenges of the Tokenization of Finance” organized by the Banque de France.
The remarks came after those made by Agustn Carstens, general manager of the Bank for International Settlements (BIS), who raised concern about the disparity between DeFi and conventional financing.
The fact that the DeFi and crypto worlds are international and borderless is, according to Carstens, the “major difficulty” that they (central bankers and regulators) face.
In order to reduce the effects of the “DeFi winter,” Powell admitted that the relationship between DeFi and the banking system has not been important in terms of financial stability. He continued, “But it showed the flaws and the work that needs to be done around regulation.”
“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 continued by saying that the right regulations must be in place as DeFi grows and begins to reach more retail customers. The remarks imply that Powell is convinced that despite the current market gloom, DeFi will experience significant growth in the future.
According to DefiLlama, DeFi total-value locked (TVL) has decreased 71% from its all-time high in late December to roughly $62 billion. The fall is consistent with cryptocurrency markets, which also experienced a comparable percentage decline.
The Biden administration’s efforts to promote a precisely defined regulatory framework for cryptocurrencies have received generally positive feedback from significant digital asset companies. However, in the United States, bureaucracy moves slowly, so it can be some time before something concrete is put on the table.
The Fed chair also discussed the possibility of a central bank digital currency (CBDC), saying that if one were to be introduced, it would not be anonymous and would need user identification.
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