Our friends at the Bank for International Settlements (BIS) have managed to generate quite the kerfuffle. Their new report argues for separating digital asset markets from traditional finance. Released on April 15, the report urges policymakers to adopt a "containment" strategy, effectively walling off digital assets and decentralized finance (DeFi) from the conventional banking system and the broader economy. Worries over volatility, anonymity, and the proliferation of USD-backed stablecoins have all served to exacerbate this position. Industry leaders fiercely oppose these measures, arguing they would undermine the financial system’s stability.
The BIS’s report should give serious pause on the claim that DeFi developers are anonymous. It further sounds the alarm on how stablecoins and cryptocurrencies have impacted countries such as Venezuela and Zimbabwe. It cautions against the macroeconomic disruption that may be triggered by the growth of such digital assets. From this, one might assume the BIS starts from a position of strong concern regarding the expanding crypto market. They worry that it might produce disorder and chaos.
Industry Leaders Push Back
Christopher Perkins, president of blockchain investment firm CoinFund, vehemently attacked the BIS’s recommendations, deeming them “dangerous” and “uninformed.” He characterized the report as an example of a “regulatory overreach,” calling the BIS’s conclusions wrong-headed.
“Many of their conclusions, perhaps fueled by fear, arrogance, or ignorance, completely miss the mark,” - Christopher Perkins
Perkins similarly challenged the BIS’s alarmism regarding the proliferation of USD-backed stablecoins, especially in emerging market economies.
“If there is demand for USD stablecoins and they help improve conditions for those in developing economies, maybe just maybe that’s a good thing,” - Christopher Perkins
The Debate Over Isolation vs. Integration
The BIS’s aggressive containment strategy has unleashed a critical discussion around how we should go about regulating digital assets. Christian Catalini, co-founder of Lightspark and MIT trained economist, opened up a cannonade against the BIS’s proposed framework. He addressed the risks in creating artificial divisions between elements of the system.
“When one market runs 24/7 in real-time and the other sleeps at night and on weekends, any artificial separation creates massive liquidity risk of unimaginable scale” - Christian Catalini
Catalini's comments underscore the potential for unintended consequences when attempting to isolate a rapidly evolving market from the established financial system.
The Growing Ideological Divide
The BIS's report highlights a growing ideological divide between those seeking control through isolation and those urging integration through modernization. This divide illustrates an important philosophical disagreement over digital assets. Opinions vary on just what role they should play in the future of finance. While the BIS emphasizes the risks associated with crypto, others see it as an opportunity to create a more efficient and inclusive financial system. For industry leaders such as Perkins, efforts to regulate crypto are doomed in the end.
“It’s the new internet that gives anyone with a connection access to financial services. You cannot control it any more than you can control the internet.” - Christopher Perkins
