Blockchain technologies can bring improvements to finance, given a regulatory framework, and links between DeFi and TradFi are being rapidly cemented already, Cunliffe said.
Bank of England Deputy Governor Jon Cunliffe shared thoughts on cryptocurrency regulation and decentralized finance (DeFi) in a talk on Nov. 21. He intended to speak about stablecoins and central bank digital currency (CBDC), Cunliffe said at a conference in Coventry, but the collapse of FTX as he wrote his draft speech led him to some more general observations as well.
FTX and a number of other centralized crypto-asset exchanges “appear to operate as conglomerates, bundling products and functions within one firm” without the tight controls of traditional finance, Cunliffe said. There is “some tentative and limited evidence” that the failure of FTX has stimulated transfers to decentralized platforms, although he took little comfort in this:
Regulation is needed to protect consumers, protect financial stability and encourage innovation, Cunliffe said, and:
The Bank of England, Financial Conduct Authority and HM Treasury are setting up a regulatory sandbox to refine “the technologies that have been pioneered and refined in the crypto world, such as tokenisation, encryption, distribution, atomic settlement and smart contracts” that offer benefits for the financial system.
The @bankofengland intends to consult in detail the regulatory framework that will apply to such systemic payment systems and the services, like wallets, that accompany them, Jon Cunliffe has shared in a recent speech. #crypto
Full speech transcript https://t.co/0UgrkRNXAv pic.twitter.com/15Zm53gRnS
Cunliffe quoted himself comparing crypto assets to “unsafe aeroplanes” to demonstrate the role of regulation in innovation. Crypto “will only be developed and adopted at scale within a framework that manages risks to existing standards,” Cunliffe said. Failure to control risk could present an existential threat to crypto, he said, citing a Nov. 17 essay in the Financial Times that suggests crypto might “implode under the pressure of its unsafe and unsound business practices,” and, the authors said, financial officials should allow it to happen.
Related: BoE policy talk: DeFi had better implement good governance before it’s too late
Cunliffe said the Bank of England would release a consultative report on the issuance of a British pound CBDC toward the end of the year. He said:
