Singapore Dangers of decentralized finance
I read a chapter in the book Megatrends by Nouriel Roubini. Here are his key points about cryptocurrency:

1. The rush to DeFi (decentralized finance) is premature and ultimately misguided. The rush to bitcoin, ethereum, dogecoin and thousands of fledging cryptocurrencies since 2010 expose our collective wilting faith in fiat currencies.

2. There are no signs that crypto-assets are performing any useful social or economic functions. They are not generally used for retail or wholesale payments and do not fund consumption or investment.

3. The blockchain alternatives are not able to perform five essential functions of a currency - unit of account, scalable, stable store of value, stable value relative to prices, be a benchmark to compare value of goods and services.

4. Cryptocurrencies are subject to risks that can become systemic. They are widely used for criminal and terrorist activities and to hide income from tax authorities.

5. One study suggests that 80% of ICO (initial coin offerings) were scams in the first place that flouted security laws.

6. There are evidence of widespread market manipulation - pump and dump schemes, illegal wash trading, fake transactions and front running.

7. Unlike regulated banks, the purveyors of cryptocurrencies furnish almost no protection. If private keys are forgottoen, lost, hacked or stolen, crypt wealth can vanish with no way to recover it.

8. Free riding DeFi flouts the supervision and regulation that traditional financial institutions face, such as AML (anti-money laundering) and KYC (Know your customer) tracking that impose heavy compliance cost. This is unfair competition. 

9. A regulator said - DeFi is most certain illegal. It flouts securities laws, lacks investor protection, preys on regulatory arbitrage against regulated financial institutions, fails to provide the essential services that financial intermediaries provide. Decentralisation is more a myth than reality.

10. If we want to revamp a centralized financial system with safeguards and supervision, we don't need crypto or blockchain. There are tools that the firms can use to collect and process financial data at blistering speeds without the use of blockchain.

TKL has been skeptical of cryptocurrencies and blockchain technologies right from the start. But the experts in MAS held a different view and were optimistic about the future of decentralized finance and blockchain technologies.

Several cryptocurrencies and crypto exchanges have collapsed due to unsustainable values of the tokens and to fraudulent operations.

The view held by Roubini and TKL have proved to be correct. 

Tan Kin Lian






 

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