The biggest regulatory story of the week was a hearing from the U.S. House of Representatives Financial Services Committee that focused directly on crypto. The title of the event – “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in the United States” – conveyed a different mood than countless previous congress sessions, which were primarily about investor protection or security risks Threats to financial stability.
Judging by the reactions of many industry participants and experts, the exchange was received as overwhelmingly positive, with lawmakers asking informed questions and otherwise acting as if their goal was to understand this new thing rather than acting on preconceived notions. Of course, there were tired questions about Bitcoin’s ecological footprint and MP Brad Sherman’s anti-crypto rants, but it ended up looking very much like a constructive dialogue between the digital asset industry and lawmakers that we’ve had for a while longed.
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Hear the industry
The hearing, convened by the Chair of the Financial Services Committee, Maxine Waters, centered on the role of crypto exchanges, the growth of the stablecoin sector and general questions about the overarching regulation of digital assets. Several leading crypto CEOs were called to represent the crypto space.
One of the prominent topics discussed in the plenary was crypto-powered Decentralization of the digital ecosystem – a politically advantageous perspective at a time when many US lawmakers are uncomfortable about the seizure of power by the tech giants of the Web 2.0 era – as well Reluctance from US regulators to give way to certain crypto investment products that could be viewed as a symptom of a fragmented regulatory approach. The connection between the global role of the US dollar and the growing demand for stablecoins also received a lot of attention.
BIS: Afraid of DeFi?
Just so as not to get carried away by what feels like a victory in Congress, a note on the Bank for International Settlements current report on decentralized financing is OK. The “bank for central banks” dived deep into the extensive DeFi space and developed a handful of alarmist slogans such as “decentralization illusion” to describe them.
BIS analysts are concerned with some structural aspects of the DeFi landscape, such as liquidity mismatches and the lack of shock absorbers like banks. The report’s authors contend that the protocols that govern DeFi activities carry risks of centralization, potentially leading to a concentration of power within these systems in the hands of a few. These claims are sure to raise many eyebrows, especially those familiar with the DeFi room.
The BIS penchant for more controlled financial innovation can be seen in the news of the active involvement of its specialized BIS Innovation Hub Testing the digital euro-based cross-border settlement together with the central banks of Switzerland and France. The experiment was considered a success, but the parties involved stressed that it did not warrant the final issue of a European CBDC.
In other centralized digital currency news, a biennial research by the Reserve Bank of Australia concluded with a report which demonstrated the potential of a digital central bank currency for large customers to improve the efficiency of financial market transactions.