Crypto Industry Leaders Blast BIS Report on DeFi Risks

The Bank for International Settlements (BIS) has come under fire from Christopher Perkins, the president of CoinFund, for its recent report on cryptocurrencies and decentralized finance (DeFi). Perkins criticized the BIS's recommendations, stating that they are "dangerous" and "uninformed," driven by a mix of fear, arrogance, or ignorance. The BIS report, titled "Cryptocurrencies and decentralized finance: functions and financial stability implication," was released on April 15 and advocates for isolating crypto markets from traditional finance.

Perkins argued that cryptocurrencies are not akin to communism but rather represent the new internet, providing universal access to financial services. He warned that attempting to contain crypto within traditional financial systems would expose these systems to massive liquidity risks. The crypto market operates in real-time, 24/7, while traditional financial markets have limited trading hours. Perkins asserted that the BIS's containment approach would exacerbate, rather than mitigate, the systemic risks the BIS aims to prevent.

The BIS report highlights the growing number of investors and capital in crypto and DeFi, raising concerns about investor protection and regulatory oversight. Perkins, however, disputes the BIS's claim that DeFi presents significant challenges. Instead, he views DeFi as a significant improvement over the traditional financial system, which he describes as opaque and imbalanced. Perkins questioned the relevance of the BIS's concern about the anonymity of DeFi developers, pointing out that traditional financial companies do not typically disclose their developers.

Perkins also addressed the BIS's worry that stablecoins could lead to macroeconomic instability in developing regions. He argued that if there is a demand for USD stablecoins and they help improve conditions in these regions, this could be beneficial. Perkins' critique was supported by Christian Catalini, co-founder of Lightspark, who likened the BIS's report to writing parking regulations for self-driving drones—an analogy suggesting the BIS is technologically behind the times.

The debate underscores the tension between traditional financial institutions and the burgeoning crypto industry. While the BIS advocates for containment and regulation, industry leaders like Perkins and Catalini see crypto as a transformative force that cannot be controlled in the same way as traditional finance. The clash of perspectives highlights the need for a balanced approach that acknowledges the potential risks and benefits of cryptocurrencies, ensuring that regulatory measures do not stifle innovation while protecting investors and maintaining financial stability.