According to the Bank for International Settlements, decentralized finance is an anomaly that shouldn’t be there in the first place and is a direct threat to the modern world of finance. Conventional financial systems are run on a centralized basis which means a state or a country is in charge of its economy and the business that is conducted within its bounds. With decentralization and cryptocurrencies taking over, the whole idea of a centralized environment is lost.
This is a great concern for many countries and financial organizations out there. The bank for international settlements works closely with central banks present on the globe so there could be monetary and financial stability, and investors are also well protected for the investment they have made. Sure there are some risks going along with this mode of investment, but it is somehow stable as compared to decentralize finance and the volatility that it represents. Just over the top of the head, there are some issues with this mode of finance, such as money laundering and unjust transfer of funds from one place to another, along with other various financial disasters that are bound to happen if DeFi remains in charge.
Now another worrisome scenario that the bank for international settlements has put forward is the interference of decentralized finance with Stablecoins. There wouldn’t be a need for the development and issuance of Stablecoins in the first place if decentralization was not around. This is a step that a centralized financial body was compelled to take in response to a decentralized monetary system being established. Stablecoins behave the same as a cryptocurrency would, but the only notable difference in both is that it is completely centralized, whereas a cryptocurrency belongs to a decentralized environment.
Now even if Stablecoins are being rolled out there, the strong volatility factors from the decentralized economy will continue to hinder it. This might lead to massive mistrust of people in Stablecoins even they are centralized, which could lead to consistent withdrawals and ultimately defaulting of the financial system that is centralized. So in a way, if decentralized finance is left unchecked, then it would not only be the end of the modern world of finance but would give rise to multiple problems which the centralized financial system has eliminated over the course of decades.
