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Matthias Knab, Opalesque: Growth of Defi has potential wide ranging implications for traditional financial markets, and Defi inherits vulnerabilities of that system and may amplify them, says a report published by the Financial Stability Board (FSB) today.
Within the crypto-asset ecosystem, so-called decentralised finance (DeFi) has emerged as a fast-growing segment. DeFi is an umbrella term commonly used to describe a variety of services in crypto-asset markets that aim to replicate some functions of the traditional financial system while seemingly disintermediating their provision and decentralising their governance.
To date DeFi is mainly self-referential, meaning its products and services interact with other DeFi products and services rather than with the traditional financial system and the real economy, but TradFi players are beginning to enter the market. In addition, DeFi has integral connections to centralised crypto-asset trading, lending and borrowing platforms, through which participants exchange crypto-assets for one another or for fiat currency, often using stablecoins.
While the processes to provide services are in many cases novel, DeFi does not differ substantially from TradFi in the functions it performs. In attempting to replicate some of the functions of the traditional financial system, DeFi inherits and may amplify the vulnerabilities of that system. This includes well-known vulnerabilities such as operational fragilities, liquidity and...................... To view our full article Click here
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