Fed's Jerome Powell has nuanced opinion on DeFi

Fed's Jerome Powell has nuanced opinion on DeFi

Jerome Powell may not be completely down with DeFi but he isn't taking the hard line other regulations are pursuing in the latest crackdown on crypto.

The forum, held by the Banque de France in Paris on Tuesday, was aimed at introducing the tokenization of finance. The Fed chairman, Powell, had a nuanced opinion on DeFi.

As much as the government does, he prefers establishing rules in decentralized finance. But he cautioned against having too many restrictions without properly assessing the damage they could cause the fledgling industry. In other words, Powell said there shouldn't be a rush to regulate because crypto doesn't pose a systemic risk to traditional finance.

Powell said as for a digitalized dollar, that the Fed is in no hurry to launch a CBDC. The Fed will collaborate with the U.S. Congress and the Biden Administration to examine policy and technological issues.

The CBDC program should have four components: it should be intermediared, privacy-protected, identity-verified, and interoperable, he said.

The traditional banking system also has a traditional component, he said. Powell said: The president has reaffirmed his commitment to reviving America's democracy.

The tone of Powell contrasted with that of Christine Lagarde, the President of the European Central Bank, which sets monetary policy for the 27-nation European Union.

Lagarde described how crypto transformed from a fringe idea embraced by libertarians into a payment system embraced by stalwarts like Visa, Mastercard, and PayPal. However, Lagarde highlighted the $60B collapse of Terra and said the failure demonstrated the need for strict regulation. She said that Terra 'abused' its position in the crypto industry.

But Lagarde said central bankers wereobligated to study blockchain technology.

The debate over the risks of DeFi is intensifying, as regulators focus on the dangers of DeFi. DeFi apps are vulnerable to the same perils found in traditional finance, such as liquidity risk, counterparty risk, and leverage risk, said Agustin Carstens, the chief executive of the influential Bank of International Settlements in Switzerland. He also said that DeFi's infrastructure doesn't have the necessary infrastructure to address these challenges.

The forum is at a frenetic stage in crypto regulation. South Korea is reportedly seeking to question Do Kwon, the founder of Terra and a native of the Asian nation, and freeze his assets. The Korean government has asked officials to cancel the passport of a Japanese national. News that Interpol has issued a Red Note for the entrepreneur's detention by member nations suggests he is on the run.

On Sept. 17 Do Kwon said he was cooperating with authorities. In the run, or anything similar, he said.

The chair of the SEC, Gary Gensler, has proposed proof of Stake cryptocurrencies such as Solana and now, Ethereum, may be deemed securities and subject to registration requirements.

The Commodity Futures Trading Commission, which regulates DeFi, criticized DeFi for failing to register its offerings as derivative securities. The U.S. lawmakers are also drafting legislation that may ban certain algorithmic stablecoins for a period of two years.