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Bank of Japan Identifies DeFi Pros and Cons
Summary: A Bank of Japan (BoJ)-issued review has tackled the topic of decentralized finance (DeFi) – and has concluded that while certain “risks” are entailed with DeFi adoption, there could be some positive aspects to greater DeFi proliferation.The review was published by the Bank of Japan’s Payment and Settlement Systems Department, which is in charge of ...
A Bank of Japan (BoJ)-issued review has tackled the topic of decentralized finance (DeFi) – and has concluded that while certain “risks” are entailed with DeFi adoption, there could be some positive aspects to greater DeFi proliferation.The review was published by the Bank of Japan’s Payment and Settlement Systems Department, which is in charge of payment policy development at the central bank.
The report identified the following potential benefits of DeFi: Increased competition in the financial sector; The creation of new financial services; Improved accessibility to financial products and services.
But the report also pointed out some potential risks, namely: A lack of regulation, which could be problematic in the case of leveraged agreements; Smart contract failure incidents – particularity pertaining to smart contract interaction-related problems, which the report’s authors said they had seen many instances of; User protection-related complications – due to the lack of centralized auditing bodies.
The report also covered the issue of DeFi sector regulatory policy, making note of the fact that it would be extremely difficult to ensure the effectiveness of central bank-, financial regulator- and government-imposed regulations due to the nature of the DeFi industry.
By Amy Liu
