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Swiss central bankers: CBDCs can bring DeFi to the mass market

 


Central Bank Digital Currencies (CBDCs) can complement Decentralized Financial Services (DeFi) very well and accordingly have the potential to drive the adoption of DeFi decisively. At least one high-ranking member of the Swiss central bank came to this conclusion.


Thomas Moser from the Governing Board of the Swiss National Bank (SNB) says that among the many different types of digital currencies, it is the centralized CBDCs that can favor the further development of DeFi.


The central banker sees this as being due to the fact that the DeFi inevitably need stable money, which they can currently find primarily in the form of stablecoins. Moser even sees this mutual dependency as one of the main reasons for the invention of (value) stable cryptocurrencies.


Although the concepts of centralization and decentralization are actually opposites by definition, Moser is sure that they can complement each other in a meaningful way with regard to digital currencies, because DeFi would benefit from a certain degree of centralization. The expert points out that almost all DeFi projects use the market-leading stablecoins Tether ( USDT ) and USD Coin ( USDC ), which are, however, centralized.


"This shows that 'some centralization' has already helped DeFi a lot today," says Moser.


In contrast to Tether or the USD coin, however, a CBDC would be significantly less risky, because central bank money “does not carry any counterparty risk”. To this end, the SNB Governing Board member explains: "A central bank cannot go bankrupt because its money is indelible."


Although cryptocurrencies such as Bitcoin ( BTC ) and Ethereum ( ETH ) are also irredeemable and are not subject to counterparty risk, their market value is not stable enough to enable sustainable growth of DeFi projects.


“Although algorithmic stablecoins would also have no counterparty risk, there has not yet been a successful stablecoin of this type,” as Moser notes, referring to the spectacularly failed algorithmic stablecoin TerraUSD (UST). He adds: "A CBDC would offer more stability and less risk than stablecoins."


The central banker's comments come days after the SNB released a joint study on blockchain technology and CBDCs in cooperation with blockchain firm Cypherium on Sept. 26. The study comes to the conclusion that CBDCs could be a useful way to ensure more stability in the crypto markets, which also includes DeFi.


In this context, the paper also explicitly addresses the recent statements by French central bank head François Villeroy de Galhau, who had already said that CBDCs “are not the big brother central banks that want to destroy the free world of decentralized finance”. Instead, CBDCs would rather aim to “offer more tools to make DeFi successful and sustainable.”


Cypherum CEO Sky Guo takes the same line, saying that the combination of DeFi and CBDC is “coming” because:


“The DeFi works fully automatically and can decouple the CBDC from human constraints. By using CBDC in DeFi, we can bring trillions of dollars of liquidity into this market, bring in large institutions, and transfer real-world assets to the blockchain.”

The SNB study is not the first time a central bank is considering possible interactions between CBDCs and DeFi. Central bankers had already explored the possible intersections between these in April 2022 . The SNB also took part in the then conference of the Bank for International Settlements.


So far, the general public has been largely opposed to the idea of ​​a central bank digital currency, because such projects could mean massive cuts in data protection and are not least therefore referred to as “slave coins”. So it remains to be seen whether the central banks will actually implement their plans and thus make a contribution to DeFi adoption, because at least the necessary acceptance does not seem to exist yet.

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