Insights

DeFi, Stablecoins, Regulation

Cryptoassets have grown at a phenomenal rate over the last couple of years. This has attracted a great deal of attention with a focus on difficult questions like those surrounding decentralisation and regulation. Rightly, this has resulted in a push on institutions and governments for answers and resolutions. 

There’s no doubt the current freedoms to build and test innovations in this space have established a durable infrastructure. This unhindered activity has been crucial for regulators to monitor and understand what can be effectively done without carelessly limiting potential. If wisely legislated, new regulations will create enough stability for the market to grow and open up to larger intuitions. 

I’d fully support the introduction of any centralised controls that will govern stablecoins in a way that will support DeFi. However, I would be cautious to encourage an overly reactive response to recent events with TerraUSD, which for many was a decentralised experiment too far. In the short term, we are probably going to see restrictions where stablecoin issuers will need to be licenced and be expected to provide more transparency concerning reserves. 

Decentralised finance protocols are a relatively recent addition to the crypto market and with them has come a new generation of blockchain technologies. These have clearly demonstrated proven efficiencies that are here to stay. While there is no turning back, the upper limit of what DeFi can achieve for investors will continually be tested by far-reaching projects that, in some cases, are doomed to fail. 

Recent events will be a welcome antidote to any persistent frothy activity with many of the major coins and protocols now set to consolidate the market. We were previously seeing DeFi protocols offering a 20% yield which was simply unsustainable and unrealistic long term. Still, these flash-in-the-pan offerings were indicative of how quickly DeFi has developed. The hope is that with sensible, measured regulation we can maintain the freedom to keep crypto decentralised wherever possible while avoiding excessive volatility whenever the success of a technical breakthrough happens, as seen with lending and borrowing on DeFi protocols.  

Richard Usher, Head of OTC Trading

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Disclaimer

The information contained in this document should not be relied upon by investors or any other persons to make financial decisions. It is gathered from various sources and should not be construed as guidance. The information contained herein is for informational purposes only and should not be construed as an offer, solicitation of an offer, or an inducement to buy or sell digital assets or any equivalents or any security or investment product of any kind either generally or in any jurisdiction where the offer or sale is not permitted. The views expressed in this document about the markets, market participants and/or digital assets accurately reflect the views of BCB Group. While opinions stated are honestly held, they are not guarantees, should not be relied on and are subject to change. The information or opinions provided should not be taken as specific advice on the merits of any investment decision. This document may contain statements about expected or anticipated future events and financial results that are forward-looking in nature and, as a result, are subject to certain risks and uncertainties, such as general economic, market and business conditions, new legislation and regulatory actions, competitive and general economic factors and conditions and the occurrence of unexpected events. Past performance of the digital asset markets or markets in their derivative instruments is not a viable indication of future performance with actual results possibly differing materially from those stated herein. We will not be responsible for any losses incurred by a client as a result of decisions made based on any information provided.

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