The idea of diversity does a sizeable amount to fascinate human beings, and rightly so. Having different perspectives and approaches in play adds a significant value to the way our world functions, thus helping us expand our boundaries in a purposeful manner. Now, while this diversity sets the stage for us to thrive on a much bigger scale, it becomes a problem once dissimilar interests began to clash. In such a situation, humans, unfortunately, have a long history of undertaking immoral activities to get their way. In a bid to tone down these ill-intentioned efforts, we have set up certain regulatory bodies, which are tasked with monitoring all our actions throughout the public domain. When initially introduced, the idea of dedicated regulation did make a lot of sense, but we forgot to anticipate some major obstacles along the way. For instance, it would soon dawn upon the regulators that the existing framework fundamentally served gazillion loopholes on a platter. These loopholes will become even more devastating on the back of technology’s arrival. As if acting as a safe haven for the rule breakers wasn’t enough, technology literally dropped a death blow on the regulatory industry by birthing virtual currency. An idea that had its whole selling pitch structured around functioning outside the law was never going to bode well with governing forces, and so ensued a dogfight between the two parties. The back and forth continues to go on. In their latest punch, however, we see regulators taking an aim at one of crypto’s most promising branches.
The Bank for International Settlements (BIS), umbrella group for all central banks, has called out DeFi platforms on the basis of having “decentralization illusion”. Even though it did not explicitly mentioned any names, BIS claimed that the platforms were misleading investors by advertising their services as decentralized, when in reality these services fail to fall in line with the established criteria. The request for better regulation interestingly comes just days after an Elliptic report revealed record-high figures in regards to DeFi scams and thefts.
“There are some incentive issues related to the fact that, through this decentralization, at some point you end up with some agents that play an important role, and not necessarily for the best [interests] of users of financial services,” said Agustin Carstens, general manager of the BIS.
BIS also touched on how these inconsistencies around DeFi ground execution can affect a much wider radius than only crypto markets. According to the bank, if the growth of DeFi isn’t complemented by a close focus on its missteps, then it can very well create “financial stability concerns.” While talking about current big vulnerabilities across the industry, BIS pointed to highly-leveraged trades, liquidity issues, and a sheer lack of shock absorbers.