Powell also acknowledged the expansion of decentralized finance and its impact on the traditional finance ecosystem.
US Federal Reserve chairman Jerome Powell has called for appropriate regulation in the DeFi ecosystem amidst concerns of significant structural issues and “conflict of interests.”
Speaking at the “Opportunities and challenges of the tokenization of finance” hosted by the Banque of France, Powell who has been very critical of DeFi, spoke out against the lack of transparency in the ecosystem.
Powell also acknowledged the expansion of decentralized finance and its impact on the traditional finance ecosystem, and advocated for a proper regulatory system.
The comments from the Feds chairman came after Agustín Carstens, the general manager of the Bank for International Settlements (BIS) expressed concern over the contrast between DeFi and traditional finance.
According to Carstens, the global and borderless nature of the DeFi and crypto world is a “big issue” for central bankers and regulators.
Powell also acknowledged that the relationship between DeFi and the banking system has not been important in terms of financial stability, limiting the impacts of the “DeFi winter.”
“We were able to witness the DeFi winter that did not have significant impacts on the banking system and broader financial stability. That’s a good thing. I think it demonstrates the weaknesses in, and the work that needs to be done around regulation carefully and thoughtfully. It gives us a little bit of time, but that situation will not persist indefinitely,” he stated.
Powell continued by saying that while that may be a good thing, it’s ultimately not a stable equilibrium and that the market must be extremely careful about how crypto activities are viewed in terms of regulatory constraints.
“In any case, wherever they take place, there is a real need for more appropriate regulation so that as DeFi expands and starts to touch more retail customers, more appropriate regulation is in place,” he added.
According to DefiLlama, DeFi total-value locked (TVL) has decreased 71% from its all-time high in late December to roughly $62 billion.
The fall is however consistent with cryptocurrency markets, which also experienced a comparable percentage decline.
Jerome Powell also gave an update on the US’s progress with central bank digital currency, stating that the Fed doesn’t expect to make a decision on a CBDC anytime soon and will require backing from Congress to proceed with one if it decided to create a CBDC.
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