DeFi

Cryptoassets - cryptocurrencies.

DeFi is an abbreviation for decentralised finance.

DeFi is an alternative system to CeFi.

DeFi enables the lending and borrowing of cryptoassets without using a central exchange.

DeFi services are algorithmic-based services that rely on smart contracts and are delivered over distributed ledger technology platforms without intermediaries.

DeFi's regulatory challenges

"The highly decentralised and global structure of the DeFi sector along with the difficulty to trace end users provide a unique set of challenges for regulators.

Even on an initial view it is clear that the sector is opaque, complex and undertakes financial activities that carry risk – activities that are regulated with the traditional financial sector.

... the degree of decentralisation currently varies across platforms.

However, in an extreme form, a DeFi platform could be completely decentralised with no identifiable legal entity, ownership nor even a point of human contact.

DeFi is still in its early infancy but its rapid growth means that regulators, domestically and internationally, need to think seriously now about the risks of a broad range of financial services being effected through DeFi platforms and how to ensure risks are managed in the DeFi world to the same standards as they are managed in traditional finance."

Is 'crypto' a financial stability risk? - Bank of England - Jon Cunliffe, Deputy Governor, Financial Stability - October 2021.

See also

• Algorithm
• Bank of England
• CeFi
• Crypto
• Cryptoassets
• Cryptocurrency
• Distributed ledger
• Exchange
• Financial intermediary
• Financial stability
• Platform
• Prudential
• Regulation
• Smart contract

External link

• Is 'crypto' a financial stability risk? - Bank of England - Jon Cunliffe, Deputy Governor, Financial Stability - October 2021