FTX contagion has raised concerns globally about the risk involved in Defi versus the opportunities they represent. Authorities in England are particularly sceptic calling for wider consultations.
The origins of cryptocurrency, particularly Bitcoin rooted in a financial system free from regulation and centralised control. The platforms that came after advocated for the same principles and have since attracted a huge following. The risks associated however cannot be understated. The past year has taught us otherwise, both centralized and decentralized platforms have crumbled under their own hands.
DeFi safety and regulatory concerns
As stated earlier, ‘Crypto’ was born in an unregulated space, and proponents intend it to remain so, however, authorities suggest that the crypto ecosystem has grown rapidly and broadened to encompass a range of mainstream financial sectors.
On 21 November, Jon Cullife, deputy governor at the Bank of England shared some intriguing concerns about DeFi with the Warwick Business Schools.
Some, of course, would argue that the answer is not proper regulation of the risks in centralised crypto platforms, like FTX, but rather the development of decentralised finance in which functions like lending, trading, clearing etc. take place through software protocols built on the permission-less blockchain.
Jon Cullife, Deputy governor Bank of England.
In other words, Jon was reiterating the effectiveness of code, in this case, smart contracts in DeFi managing risks rather than intermediaries. Using DeFi by combining the functions of trading, clearing and settlement of tokenised financial assets into a single, instantaneous smart contract, rather than being carried out by separate institutions as was the case with FTX.
In the FTX debacle, balance sheets revealed that funds from the FTX exchange were lent out to Alameda research without prior permission from users. Unwise decisions from the entity led to the firm filing for ການລົ້ມລະລາຍ ໃນສະຫະລັດອາເມລິກາ.
Source: https://www.cryptopolitan.com/defi-cannot-be-trusted-authorities-england/