BIS report: DeFi can cause harm to the financial system

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TL; DR Breakdown

  • BIS report weighs into the impact of DeFi on the financial system
  • BIS wants regulators to watch the DeFi sector closely
  • The report reviews the massive growth of the sector

The decentralized finance sector of the crypto market has some unique features that most centralized markets lack. One of these includes deep anonymity, as users do not need to provide verification documents to sign up on the protocols in the sector. Asides from that, users are open to earning massive profits without the need for third-party financial institutions. With the DeFi sector providing all this, the latest BIS report has said its capabilities could disrupt the financial system in place.

The BIS wants regulators to watch the DeFi sector closely

The Bank for International Settlements is an organization based out of Switzerland whose main objective is to provide stability to financial institutions worldwide. It also acts as the central headquarters to all banks globally, coupled with its mission to increase cooperation.

In the documents submitted as part of the BIS report, the financial body discussed various ills in the decentralized finance sector. Some of the issues tackled include the industry’s failure to provide a soft landing for investors and the likeliness that money laundering activities might be perpetrated in the market. The BIS report also talked about the reliance on fiat stablecoins, as various issues in the market could trigger massive withdrawals.

BIS report reviews the massive growth of the DeFi sector

The BIS report also touched on issues relating to the risks in the Decentralized finance sector for all parties involved. Over the last few months, there have been many funds stolen across protocols going to a tune of $1 billion. Although protocols are now looking for ways to guard themselves, hackers and scammers are also devising new methods to carry out their activities.

In the BIS report, the body states that it would not want a blowback of the activities in the sector on the financial system. The BIS also says its massive growth in such a short time is unbelievable and would need a close watch from regulators worldwide. The body also says that there are no real use cases and benefits of the sector in the real world as most projects in the space have always claimed.

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