A senior advisor to the Bank of England, Carolyn Wilkins, said that decentralized finance (Defi) isn’t as decentralized as it claims to be in her speech at University College London’s Blockchain Research Center on Wednesday.
“Concentrations of power in [proof-of-work] and [proof-of-stake] systems, and other flaws in governance of crypto and DeFi, have already contributed to all-too familiar issues; top of the list are business failures, illegal activity, and financial losses for investors,” warned Carolyn Wilkins, an external member of the central bank’s financial policy committee.
She also said that if left unchecked, this state of affairs will erode trust among investors in crypto-based financial services and their customers, and could lead to financial stress more broadly.
Wilkins cited a study from April 2022 by the National Bureau of Economic Research on Cryptocurrencies and Decentralized Finance, which revealed that the top ten validators held between 47% and 100% of the stakes in a sample of the 50 largest by market capitalization proof-of-stake platforms.
She acknowledges that regulation and legislation around digital assets still remains a work in progress.
However, she called on the private sector and DeFi investors to ensure the safety and proper governance of projects and digital assets. According to her it is in the interest of the private sector to be proactive.
Wilkins said, major investors must ‘get up, stand up’ to demand change. It is critical that the industry adopts best practices and codes of conduct to reinforce trustworthy behavior and culture.
Wilkins cautioned that when it comes to proof-of-work blockchains, crypto miners may exploit their position by deciding how to carry out transactions or manipulate the market in a way known as “maximum extractable value.”
She also added that open source DeFi platforms like Polkadot and MakerDAO have emergency powers for leadership teams to unilaterally make decisions.
Wilkins also pointed out that the traditional financial industry has started implementing blockchains, adding to the urgency of the need for advancements from digital asset projects.
She believes that if the crypto industry does not get its house in order, regulated firms will be in a better position to capture the market. As they are increasingly applying the underlying blockchain technology to traditional capital markets, and they have more familiar and battle-tested governance.
Also Read: Crypto will Become a ‘major’ Game Changer says Walmart CTO
