Fed's Powell: DeFi must undergo proper regulation before entering the retail market

By: Michael Wilson

Fed's Powell: DeFi must undergo proper regulation before entering the retail market

September 28, 2022 6:04 AM

Jerome Powell has pointed out the need for regulation as he has acknowledged that DeFi will begin to reach more retail customers.


Jerome Powell, chairman of the Federal Reserve System in the United States, has called for proper regulation of the growing Decentralized Financial Infrastructure (DeFi) sector.


While speaking at the Banque de France event titled "Opportunities and challenges of the tokenisation of finance" on September 27th, Jerome Powell cited "very significant structural issues around the lack of transparency" in the DeFi ecosystem.


These remarks followed those of Agustn Carstens, general manager of the Bank for International Settlements (BIS), who voiced concern about the differences between DeFi and conventional finance.


As an additional "huge challenge," Carstens argued that the global and borderless nature of the DeFi and crypto world presents to central banks and regulators.


Powell admitted that the "DeFi winter" has had limited effects because of the lack of a major impact from DeFi's interaction with the banking system. But it showed where regulation is lacking and where more work is needed, he said.


"There is a real need for more appropriate regulation, so we need to be very careful about how crypto activities are taken within the regulatory perimeter, wherever they take place."

Powell also mentioned that proper regulation is required as DeFi grows and begins to affect more retail customers. Even though the market is currently stagnant, Powell's comments suggest that he is optimistic about the future growth of DeFi.


From its all-time high in late December, DeFi total-value locked (TVL) has dropped 71% to around $62 billion, as reported by DefiLlama. Similar percentage drops have been seen in the markets for cryptocurrencies.


In general, the efforts of the Biden administration to establish a uniform regulatory framework for cryptocurrencies have been met with approval by the industry's largest digital asset firms. The United States bureaucracy moves slowly, however, so it will be some time before any concrete proposals are made.


The Fed chair also addressed the possibility of a CBDC being issued by the United States central bank, saying that such a currency, if introduced, would not be anonymous and would require user identification.