Today’s crypto assets have a long way to go before getting associated with words such as “robustness” or “stability,” says Bank of Spain Governor Pablo Hernández de Cos at the International Swaps and Derivatives Association (ISDA) annual meeting, saying it is still unknown if today’s DeFi and crypto ecosystem “will deliver net benefits to society or not.”
Chairman de Cos explained, on Thursday, that the Basel Committee jury is still uncertain on how to “best” deal with DeFi and cryptocurrencies despite a deeper understanding of the technology today.
“The jury is still out when it comes to ascertaining how best to harness their oft-cited promises and benefits while mitigating their risks and safeguarding financial stability.”
Before fully utilizing DeFi and crypto, de Cos explained that institutions should first explore how many existing problems can be better solved by existing financial architecture. He cited the G20 roadmap that was made to help enhance cross-border payments before cryptos got involved.
He also questioned how a decentralized financial system can be achieved in practice, since “some level of centralization is inevitable and structural aspects could lead to a concentration of power”.
Thirdly, the chairman suggested that the “noise” surrounding crypto should be filtered, pertaining to shilling and other bullish and bearish statements that could affect crypto prices.
“Most cryptoassets today cannot be associated with terms such as ‘robustness’ or ‘stability’,” stressed de Cos. “It’s not surprising to see that most central banks are exploring central bank digital currencies (CBDCs) as a potentially more promising route.”
To address the committee’s uncertainty of whether DeFi and crypto will deliver net benefits to society, de Cos reiterated its mandate to strengthen the regulation, supervision, and practices of banks worldwide.
In 2019, Basel Committee released a paper that discussed three high-level guiding principles. These were simplicity and caution, same risk, same activity, same treatment, and minimum standards.
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