​BIS calls decentralization of DeFi protocols an illusion Dec | Cryptocurrency Bitcoin NEWS

​BIS calls decentralization of DeFi protocols an illusion

Decentralized finance (DeFi) has a centralization issue that policymakers need to take advantage of to regulate the sector. This conclusion is contained in a new quarterly report of the Bank for International Settlements (BIS).

DeFi is experiencing an "inevitable need" for centralized governance, the report says.

“There is a limit to the extent to which a financial system can operate solely on the basis of automated transactions. This is an open question. We need to keep a close eye on this, ”said Hyun Sung Shin, Head of Research at BIS.

He expressed confidence that there will be times when DeFi will require reorganization or evaluation. The inherent governance structures of protocols are the obvious starting points for public policy, the report says.

Analysts questioned whether decentralized finance could disrupt a larger financial system despite explosive growth.

They admitted that as DeFi becomes more popular, financial stability could be threatened by "serious vulnerabilities" in the protocols. These include landing projects, liquidity problems in stablecoins, interconnected applications, and a lack of banks to deal with potential shocks.

BIS noted that the thesis of full decentralization in DeFi does not hold water. At the same time, the introduction of governance tokens and DAOs can weaken it.

“This element of centralization can serve as the basis for the recognition of DeFi platforms by legal entities, similar to corporations. For politicians, these groups and management protocols are natural subjects of regulation, ”the report says.