A global financial regulator known as the Financial Stability Board (FSB) is backed by the Bank for World Settlements (BIS). The FSB is now advocating for global standards for decentralized finance (DeFi) systems.

The Financial Stability Board (FSB) released a study on decentralized finance and the risks it poses to the country’s overall financial stability on February 16. The research assessed the dangers decentralized finance posed to the overall financial stability of the country. The focus of the study was to identify significant failures, trace transmission networks, and investigate the development of decentralized financial systems.

The authority said in the study that decentralized finance (DeFi) “does not vary materially” from conventional finance (TradFi) in its operations, despite DeFi offering a variety of “new” services. This was discussed in connection with actions DeFi was involved in. According to the reasoning of the Financial Stability Board, the fact that DeFi tries to mimic certain aspects of TradFi’s activities raises the possibility of increased vulnerabilities brought about by the use of innovative technologies. , a high degree of interconnections between ecosystems and a lack of regulation or enforcement. These three factors are what the Financial Stability Board considers to be the three main causes of increased vulnerability. This is the conclusion one can come to by examining the evidence provided in the argument.

Furthermore, the authority said that the actual degree of decentralization in DeFi systems “often deviates greatly” from the statements initially made by the system’s founding fathers and mothers about the system’s capabilities. These claims were made early on, when the technology was still in its early stages of development.

In order to prevent the emergence of financial stability risks associated with decentralized finance, the Financial Stability Board (FSB) is collaborating with global standardization agencies to assess decentralized finance rules in several different jurisdictions. This will allow the FSB to prevent risks from materializing in the first place. Due to this, the FSB will be able to prevent the appearance of these threats.