The Chief Economist Adviser of India recently issued a warning about the risks that are inherent in digital innovations like cryptocurrencies and DeFi i.e. decentralized finance. A non-governmental Indian trade association called ASSOCHAM had organized an event where the CEA made the statement. He said that the fact there is no watchdog or regulation in the space means there is a great deal of distress and tension involved.
No Regulatory Authority
Cryptocurrencies have been developed to act as a medium of exchange and the primary feature of these digital currencies is that there is no regulatory authority or central authority to oversee them. The fact that there is no government interference, or central authority to oversee the crypto and DeFi ecosystem means the investors are left vulnerable to the risks. In the last few years, this has become a rather big concern.
The best way to understand the issue is to look closely into the concept of decentralized finance (DeFi). This is a financial technology that also uses distributed ledgers the same as that of cryptocurrencies. The entire concept of decentralized finance is to ensure that no institution or bank can control over the money involved, or the different monetary products.
Different Countries Have Reacted Differently
Since there is no government or central authority for regulating the crypto markets, the need for regulating them has become a matter of urgent concern. It is understood that investors want to have some protection against the risks involved. This has prompted countries to introduce legislation that would provide some oversight by the government. The governments are setting up watchdogs to help ensure that people can be protected when they invest in this space.
Some of the countries that have introduced such measures include Japan and South Korea. The latter is currently working on coming up with a ‘self-regulatory’ system, which was brought on by the implosion of the TerraUSD and LUNA tokens. The goal is to ensure there are no such incidents again. As far as Japan is concerned, they have also introduced a stablecoin regulation bill for protecting investors.
The law has made it mandatory for issuers to link their stablecoins with a legal tender, such as the Japanese yen. Likewise, amendments have also been proposed in England for regulating crypto firms.
India’s CEA Issues A Warning
Mr. V. Anantha Nageswaran, the Indian Chief Economic Adviser, discussed the same issue at the conference he was attending. He said that introducing a regulatory authority for the market is of the utmost importance. Speaking in favor of T. Rabi Sankar, the Deputy Governor of the RBI, he said that the current state of affairs of the crypto and DeFi market was undoubtedly worrisome.
He went on to say that if crypto was to work as an alternative to fiat, then it would have to have certain characteristics, such as being a store of value, being widely accepted and also being a unit of account. He said that DeFi and crypto have not managed to pass this test as yet.