Central bank digital currencies (CBDCs) can fully trust decentralized finance (DeFi), and they’ve lots of possibility to boost DeFi adoption, based on a Swiss central bank official.
Among many various digital currencies, it’s CBDC that may provide more stability minimizing risks to the introduction of DeFi, based on Thomas Moser, a governing board member in the Swiss National Bank (SNB).
To be able to grow, DeFi needs stable money, and that’s why stablecoins came to be, and stablecoins clearly helped DeFi to get popular, Moser told Cointelegraph.
Despite being polar opposites, centralization and decentralization in digital currencies can really interact as centralization isn’t harmful to DeFi, Moser contended. He noted that major stablecoins like Tether (USDT) and USD Gold coin (USDC) would be the most broadly used stablecoins in DeFi, each of which are centralized.
“Therefore, ‘something centralized’ has helped DeFi quite a bit,” the SNB official mentioned.
Unlike Tether or USD Gold coin, a CBDC would entail lower risks for DeFi than the usual redeemable stablecoin because central bank money “does not entail counterparty risk,” Moser stated. “A central bank cannot go under, because it issues irredeemable money,” he added.
Other kinds of digital currencies, including cryptocurrencies like Bitcoin (BTC) or Ether (ETH) will also be irredeemable, which means no counterparty risk. However, their cost isn’t stable enough to aid sustainable DeFi growth, the state noted.
“Algorithmic stablecoins would also not entail counterparty risk, but to date, we’ve not seen effective algorithmic stablecoins,” Moser stated, talking about the collapse of TerraUSD (UST) in May 2022. “A CBDC could provide more stability minimizing risks than stablecoins,” the state added.
Moser’s remarks came soon after the SNB and also the blockchain firm Cypherium printed some pot paper on blockchain technology and CBDC on Sept. 26. The research figured that CBDCs could help as a helpful tool for stabilizing the cryptocurrency economy, such as the DeFi sector.
The paper particularly pointed out recent remarks by Banque de France governor François Villeroy de Galhau, who contended that CBDC is “not concerning the your government of central banks threatening the disposable realm of decentralized finance.” He stressed that CBDCs would prefer to actually cover “providing further tools to make DeFi effective and sustainable.”
Cypherum Chief executive officer Sky Guo expressed confidence the mixture of DeFi and CBDC technologies are “destined to occur,” stating:
“DeFi is fully automatic and may free CBDC from human limits. With CBDC utilized in DeFi, don’t be surprised hundreds and trillions of dollars of liquidity introduced into the forex market, big institutions getting into this space and real-world assets moving forward-chain.”
The SNB’s study isn’t the very first time for any central bank to consider possible interactions between CBDCs and DeFi. In April 2022, central bank officials discussed potential interactivity between DeFi-based markets and CBDC in a conference co-located through the Bank for Worldwide Settlements’ Innovation Hub and also the SNB.
As formerly reported, everyone continues to be largely opposing the thought of CBDC because of the connected insufficient privacy, with lots of talking about such projects as “slavecoins.” It remains seen whether central banks are actually prepared to lead towards the DeFi adoption because the earth has not seen an excessive amount of support for crypto from central banks.
This news comes among major European banks ongoing to check mix-border retail and remittance payments with CBDC. On Sept. 28, the Swedish, Norwegian and Israeli central banks announced another project to check worldwide payments in CBDC.
