A global financial regulator known as the Financial Stability Board (FSB) has the backing of the Bank for Worldwide Settlements (BIS). The FSB is now advocating for worldwide standards for decentralized financial systems (DeFi).
The Financial Stability Board (FSB) published a study on decentralized finance and the risks it presents to the overall financial stability of the country on February 16th. The research evaluated the hazards that decentralized finance posed to the overall financial stability of the country. The focus of the study was on identifying significant flaws, tracking transmission networks, and investigating the development of decentralized financial systems.
The authority said in the study that decentralized finance (DeFi) “does not vary materially” from conventional finance (TradFi) in its operations, despite the fact that DeFi offers a variety of “new” services. This was spoken in relation to the actions that DeFi was participating in. According to the reasoning of the Financial Stability Board, the fact that DeFi attempts to mimic certain aspects of TradFi’s activities raises the possibility for increased vulnerabilities brought on by the use of innovative technologies, a high degree of ecosystem interlinkages, and a lack of regulation or compliance. These three factors are what the Financial Stability Board considers to be the three main causes of increased vulnerability. This is the conclusion that one may reach by examining the evidence provided in the argument.
In addition, the authority said that the actual degree of decentralization in DeFi systems “frequently deviates greatly” from the statements that were initially made by the system’s founding fathers and mothers about the capabilities of the system. These assertions were made in the beginning, back when the technology was still in its infant stages of development.
In order to forestall the emergence of financial stability risks that are associated with decentralized finance, the Financial Stability Board (FSB) is collaborating with global standard-setting agencies to evaluate decentralized finance rules in a number of different jurisdictions. This will allow the FSB to prevent the risks from materializing in the first place. Because of this, the FSB will be able to forestall the appearance of these threats.