Bank of International Settlement Discredits the Emergence of DeFi; Calls It an Illusion

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The Bank of International Settlement (BIS) published a particular report this Monday criticizing the path of decentralized finance (DeFi) to prominence – outright claiming that the sector’s emergence is merely an illusion.

According to the BIS, a financial institution co-owned by several central banks worldwide, there is a decentralized illusion in DeFi itself as the need for governance only highlights the inevitability of centralization. Furthermore, the system’s structural concepts lead to a concentration of power, says the BIS.

The report expands on this by stating that if DeFi were to become more widespread, its inherent weaknesses would most likely undermine financial stability. Such could prove severe because of the sector’s high leverages, liquidity mismatches, integrated interconnectedness, and absence of viable shock absorbers, such as bank institutions.

BIS continued discrediting the rise of DeFi by claiming that it is currently geared predominantly towards speculation, arbitrage, and investing in cryptocurrencies rather than implementing real-economy use cases. It adds that DeFi’s main selling point, its capability to reduce the rents brought by third parties on centralized entities, is still not there at all.

We are yet to witness the reaction of the DeFi community with this report posted by the BIS.

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