A crypto-skeptical governor of the US Federal Reserve says technological advances associated with decentralized finance (DeFi) could complement its centralized finance counterpart.
In one speech Earlier this week in Vienna, Austria, Fed Governor Christopher J. Waller said DeFi technology could lead to efficiency gains, although he also emphasized the value of centralized financial markets.
“It is easy to see how the rise of these technologies could lead to DeFi being viewed as a substitute for centralized finance. For example, the technologies allow individuals to trade assets without giving up control of those assets to an intermediary – a crucial distinction from centralized finance.
However, other applications are also emerging from these technologies that are more likely to complement centralized finance. For example, distributed ledger technology, or DLT, can be an efficient and faster way to maintain data in a 24/7 trading world. We are already seeing several financial institutions experimenting with DLT for traditional 24/7 repo trading. But before these ledgers can be used to facilitate transactions in traditional assets – such as debt, equities and real estate – these assets must be tokenized. Undertaking the process of tokenizing assets and using distributed ledgers such as blockchain can speed up asset transfers and take advantage of another innovation: smart contracts.
Waller also states that it is not possible to ‘completely decentralize finances’.
“Intermediation is still valuable to the average person, and we see that in the existence of trading exchanges in the crypto world. All of these platforms give custody of one’s crypto assets to an intermediary, who transacts on behalf of the customer. This reintroduces the need for trust in these platforms, just as trust is needed in modern banking systems.”
The Fed governor argued in a separate speech in February that digital assets are like baseball cards and have no intrinsic value.
“To me, a crypto asset is nothing more than a speculative asset, like a baseball card. If people believe that others will buy it from them at a positive price in the future, then it will trade at a positive price today. If not, the price goes to zero.
If people want to own such an asset, then go for it. I wouldn’t do it, but I don’t collect baseball cards either. However, if you buy crypto assets and the price goes to zero at some point, don’t be surprised and don’t expect the taxpayers to socialize your losses.”
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Generated image: Midjourney