A crypto-skeptical governor of the US Federal Reserve says technological advances associated with decentralized finance (DeFi) could complement its centralized finance counterpart.
In a speech earlier this week in Vienna, Austria, Fed Governor Christopher J. Waller said DeFi technology could lead to efficiency gains, while also highlighting the value of centralized financial markets .
“It is easy to see how the emergence of these technologies could lead to DeFi being viewed as a replacement for centralized finance. For example, technologies allow individuals to exchange assets without ceding control of those assets to an intermediary – a key distinction from centralized finance.
However, other uses are emerging for these technologies that are more like complements to centralized finance. For example, distributed ledger technology, or DLT, can provide an efficient and faster way to keep records in a 24/7 business world. We are already seeing several financial institutions experimenting with DLT for traditional repo operations that take place 24/7. But before these ledgers can be used to facilitate transactions in traditional assets – like debt, equity and real estate – these assets must be tokenized. Undertaking the process of asset tokenization and using distributed ledgers like blockchain can accelerate asset transfers and leverage another innovation: smart contracts.
Waller also argues that it is not possible to “completely decentralize finance.”
“Intermediation is still valuable to the average person, and we see this through the existence of trading in the crypto world. All of these platforms involve entrusting the custody of crypto-assets to an intermediary, who carries out transactions on behalf of the client. This reintroduces the need for trust into these platforms, just as trust is necessary 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 cryptoasset is nothing more than a speculative asset, like a baseball card. If people believe that others will buy them in the future at a positive price, then they will trade at a positive price today. Otherwise, its price will drop to zero.
If people want to hold such an asset, then go for it. I wouldn’t, but I don’t collect baseball cards either. However, if you buy crypto assets and the price hits zero at some point, don’t be surprised or expect taxpayers to socialize your losses.
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Disclaimer: Opinions expressed on The Daily Hodl do not constitute investment advice. Investors should conduct due diligence before making high-risk investments in Bitcoin, cryptocurrency or digital assets. Please note that your transfers and transactions are at your own risk and any losses you may incur are your responsibility. The Daily Hodl does not recommend the purchase or sale of cryptocurrencies or digital assets, nor is The Daily Hodl an investment advisor. Please note that The Daily Hodl participates in affiliate marketing.
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