The Bank of Canada published a staff note on decentralized finance (DeFi) on Oct. 17, assessing the innovations that made it popular and the challenges and risks associated with its use.
The staff note described DeFi as a multi-layered structure, with the Ethereum blockchain serving as the bottom layer (or settlement layer). Developers construct a variety of tools and services on top of the main blockchain, including tokenization, lending and borrowing services, and much more.
The staff note shed light on the rise in popularity of the DeFi ecosystem starting in 2020 and how it became an integral part of the crypto economy, with billions in volume over the next few years. The popularity of the ecosystem took a dip starting in 2022 with the collapse of multiple key crypto platforms with significant DeFi exposure, including Terra.
Talking about the key features of the decentralized ecosystem, the staff note lauded DeFi’s “composability,” which allows the apps and services in the ecosystem to interconnect. The Bank of Canada note highlighted three of the key areas where DeFi can transform the financial system:
Frictionless financial service offering: A decentralized ledger-based system reduces frictions experienced in the legacy system and expands the scope of financial services currently being offered.
Open competition: The DeFi ecosystem is open to everyone to build and access, given its open-source nature; thus, it makes way for increased competition, offering better options for the end user.
Transparency: The use of programmable smart contracts eliminates intermediaries and increases transparency in the system, as everything is accessible to people analyzing it.
Apart from the key DeFi innovations that can transform the traditional financial system, the staff note also talked about the challenges and risks associated with the DeFi ecosystem, claiming that “despite its innovations and possibilities, the overall economic benefits of DeFi remain limited.”
The note lists three key challenges that the DeFi system faces today: the lack of real-world tokenization, the higher concentration of interconnection within, and its dependence on the unregulated centralized finance ecosystem.
The note also highlighted the regulatory challenges posed by the DeFi ecosystem and the rise in vulnerabilities in the ecosystem, leading to several hacks and exploits. The note claimed that “the anonymous and borderless nature of public blockchains complicates regulatory oversight.”
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Canterbury MP Rosie Duffield has resigned from the Labour Party.
The 53-year-old MP is the first to jump ship since the general election and in her resignation letter criticised the prime minister for accepting thousands of pounds worth of gifts.
She told Sir Keir Starmer the reason for leaving now is “the programme of policies you seem determined to stick to”, despite their unpopularity with the electorate and MPs.
In her letter she accused the prime minister and his top team of “sleaze, nepotism and apparent avarice” which are “off the scale”.
“I’m so ashamed of what you and your inner circle have done to tarnish and humiliate our once proud party,” she said.
Since December 2019, the prime minister received £107,145 in gifts, benefits, and hospitality – a specific category in parliament’s register of MPs’ interests.
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Ms Duffield, who has previously clashed with the prime minister on gender issues, attacked the government for pursuing “cruel and unnecessary” policies as she resigned the Labour whip.
She criticised the decision to keep the two-child benefit cap and means-test the winter fuel payment, and accused the prime minister of “hypocrisy” over his acceptance of free gifts from donors.
“Since the change of government in July, the revelations of hypocrisy have been staggering and increasingly outrageous,” she said.
“I cannot put into words how angry I and my colleagues are at your total lack of understanding about how you have made us all appear.”
Ms Duffield also mentioned the recent “treatment of Diane Abbott”, who said she thought she had been barred from standing by Labour ahead of the general election, before Sir Keir said she would be allowed to defend her Hackney North and Stoke Newington seat for the party.
Her relationship with the Labour leadership has long been strained and her decision to quit the party comes after seven other Labour MPs were suspended for rebelling by voting for a motion calling for the two-child benefit cap to be abolished.
“Someone with far-above-average wealth choosing to keep the Conservatives’ two-child limit to benefit payments which entrenches children in poverty, while inexplicably accepting expensive personal gifts of designer suits and glasses costing more than most of those people can grasp – this is entirely undeserving of holding the title of Labour prime minister,” she said.
Ms Duffield said she will continue to represent her constituents as an independent MP, “guided by my core Labour values”.