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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