The Bank for International Settlements (BIS), a financial institution composed of multiple central banks, stated that although the goal of decentralized finance is to transfer control of financial instruments from existing financial institutions, it only provides an “illusion”. The organization It is believed that there is some kind of centralization around governance tokens, which extends to the Proof of Stake (PoS) consensus chain.

The Bank for International Settlements criticizes the reason for the existence of decentralized finance

The Bank for International Settlements (BIS) is a group of central banks that has addressed the rise of decentralized financial applications and their current impact on capital markets.Bank has criticize The latest quarterly report of cryptocurrency before and now Review, The organization released a report called “Defi Risks and Decentralization Illusion”, questioning the spirit of the industry and claiming that there is no real decentralization.

The report pointed out that the current implementation of defi has little impact on bringing financial freedom to the public because it is a self-sufficient environment. The report emphasizes:

At present, (defi) has almost no real economic use, and to a large extent supports speculation and arbitrage across multiple encrypted assets. Given this self-sufficient nature, the potential for defi-driven destruction in the broader financial system and real economy now appears to be limited.

Decentralization is an “illusion”

In addition, compared with traditional financial markets, BIS criticized defi’s announcement of its completely decentralized approach. The organization believes that this kind of decentralization is just an illusion, and there are also centralization risks in the implementation of defi today.

The report states:

All deFi platforms have a centralized element, usually around the holders of “governance tokens” (usually platform developers) to vote on proposals, which is different from company shareholders.

In addition, because of this governance element, it makes the defi agreement to be treated as a legal entity. Since most of the chains hosting decentralized financial protocols are driven by the consensus algorithm of proof-of-stake, this has also led to a certain degree of centralization in the hands of large token holders.

According to the review, another interesting source of centralization is the growing connection that the traditional financial world is establishing with these new agreements. This may lead to spillovers from traditional finance and bridging companies to defi, significantly affecting the operation of these agreements.

What do you think of the latest report of the Bank for International Settlements and its conclusions? Tell us in the comments section below.

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