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Fed's Powell Says Real Need for DeFi Regulation Because of 'Significant Structural Issues' (techcrunch.com) 58

Posted by msmash from the tussle-continues dept.
Federal Reserve Chairman Jerome Powell ramped up his criticism of decentralized finance on Tuesday, saying the monetary policy normalization worldwide has "revealed significant structural issues in the DeFi ecosystem" and exposed "conflict of interest," as he called for more appropriate regulation. From a report: "Within the DeFi ecosystem, there are these very significant transparency, lack of transparency [issues]," he said at a conference hosted by the Banque of France. From the financial stability standpoint, Powell said, "the interaction between the DeFi ecosystem and traditional banking system and traditional financial system is not that large at this point. So we were able to witness the DeFi winter that did not have significant impacts on the banking system and broader financial stability. That's a good thing. I think it demonstrates the weaknesses in, and the work that needs to do be done around regulation carefully and thoughtfully. It gives us a little bit of time, but that situation will not persist indefinitely. Ultimately that's not a stable equilibrium and we need to be very careful about how crypto activities are taken within regulatory parameter. In any case, wherever they take place, there is a real need for more appropriate regulation so that as DeFi expands and starts to touch more retail customers, more appropriate regulation is in place."
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Fed's Powell Says Real Need for DeFi Regulation Because of 'Significant Structural Issues' More

Fed's Powell Says Real Need for DeFi Regulation Because of 'Significant Structural Issues'

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  • Yeah, (Score:5, Insightful)

    by Black Parrot ( 19622 ) on Tuesday September 27, 2022 @11:01AM (#62917977)

    If by "structural issues" you mean theft and fraud.

    • If by "structural issues" you mean theft and fraud.

      No, no, no. The real fraudsters are the plebs who bought stock and held it, I’ve been assured this by every mainstream financial institution talking head. It’s cost millions their retirement! All those poor poor people are now poor and it’s all 100%, don’t even think, retails fault.

      • Re:Yeah, (Score:4, Informative)

        by Cool Hands Leia ( 10159653 ) on Tuesday September 27, 2022 @11:21AM (#62918061)
        No, no, no, NO!

        has "revealed significant structural issues in the DeFi ecosystem" and exposed "conflict of interest," as he called for more appropriate regulation

        Pot, kettle, black? Powell is a representative for financial interests who have their system of currency. Now where is the conflict of interest?

        • Re:Yeah, (Score:5, Informative)

          by Noobsa44 ( 1101755 ) on Tuesday September 27, 2022 @12:03PM (#62918179)

          Isn't that what he said? The conflict of interest is with the existing power structure. This historically goes under Thucydides style traps, which tend to lead to war. The fact that the powerful protect their power should not be news to anyone. The fact that the rising power wants to break that power is also not news. In "American Nations: A History of the Eleven Rival Regional Cultures of North America" it discusses how many of the elite of the United states were second sons trapped in an economic system that did not favor them. Since the first son basically gets all the power and wealth in England or wherever, the second son is just a backup, and is really pretty screwed. In a sense, our revolution was about the wealthy second sons punching their older brothers and fathers in the snoot, because they were tired of being pushed around. At best, DeFi is second sons, that is to say, the rich elite who were on the losing side of globalization and cantillon effects fighting the existing power. Why most of the little people who support DeFi think it is a better long term system have lost me. At best, it will create churn and maybe it will be good for a generation or two. Or it will be a terrible master, pushing us towards wars with more worrying groups (See the history of deflationary money like gold, with special emphasis placed when gold ends up trapped in one place). Then again, the existing system is looking long in the tooth.

          • they've already centralized around the exchanges and a handful of mining pools. The Ethereum merge has shook up the GPU pools a bit, but the ASIC miners are unaffected.

            DeFi doesn't change how many have the power coupons, just who. It's not magic, it's a computer program instead of a person enforcing the rules of the game. But somebody still lays out those rules. And it doesn't change the fact that the House Always Wins. You're just trying another casino.

      • If buying and simply holding a stock can break the market, then the market was already broken.

    • Isn't the whole point of the deregulated finance industry to avoid regulation?

    • That these motherfuckers like Powell allowed this to happen through their creative bureaucratic processes. He can't fix a thing. He and his ilk made this mess. While the dementia presidential patient is walking around muttering nonsense and spending tax money to the tune of trillions like a drunken sailor, Powell just sat back and watched. Now he has to 'act'.
  • Is Powell trying some hand-wavey kind of stuff to distract attention from the heinous inflation numbers and the Fed's failure to anticipate same?

    • Is Powell trying some hand-wavey kind of stuff to distract attention from the heinous inflation numbers and the Fed's failure to anticipate same?

      I prefer to just be told how much more on fire the rest of the world is. Puts things right into perspective. Makes me feel nice and warm inside to know I’m winning while the melting plastic of my clothes keeps me warm on the outside.

    • Re: (Score:2)

      by bwt ( 68845 )

      Powell don't view it that way, but people hearing it should. The Fed is doing a lousy job over the past few years of regulating the money supply. So how about you get your primary mission under control before looking to expand.

      Yes, Defi needs some regulation to avoid scams and rug pulls and assure accountability. I'd like to see the industry propose its own regs first, before we take the risk that heavy handed government regs will hamstring it.

      • Yes the Fed sucks and has for a long time but to be fair, there were trillions of extra dollars magicked into existence in a VERY short period of time during Covid. It's impossible to control a burst of fresh fake cash like that.

        What the Fed -should- have done at the time is scream about inflation while the discussions were going on. I don't recall a whole lot of noise about "but if we print 6 trillion extra dollars it will cause massive inflation!" at the time from the Fed or anyone else.

        And here we are.

    • Is Powell trying some hand-wavey kind of stuff to distract attention from the heinous inflation numbers and the Fed's failure to anticipate same?

      Pretty much everything done by public officials at the Federal level these days, is nothing more than them abusing Weapons of Mass Distraction. And citizens fall for it every time. Why change what works?

      We wouldn't want too much spotlight on an unregulated art world that so many elitists abuse as tax hideouts.

      Oh and real shocker to find the Fed head bitching about the competition. Color that predictable.

    • Comment removed (Score:5, Insightful)

      by account_deleted ( 4530225 ) on Tuesday September 27, 2022 @12:16PM (#62918211)
      Comment removed based on user account deletion

      • Re:Is this a distraction? (Score:4, Interesting)

        by MobyDisk ( 75490 ) on Tuesday September 27, 2022 @12:55PM (#62918295) Homepage

        The only thing the federal reserve could have done, is not lower interest rates during the pandemic [washingtonpost.com]. They didn't need to, because the economy was fine. Even when the economy did drop during the pandemic, lowering rates didn't help. They lowered rates because of political pressure exerted by President Trump to buoy the stock market.

        But there are plenty of economists and prominent investors saying the Fed shouldn’t cut at all because it is not justified and will look as though the Fed is caving in to Trump’s bullying — or Wall Street’s.

        “I have to conclude the Fed has lost some independence here,” said Blu Putnam, chief economist at CME Group.

        THAT is what we should be criticizing.

        • The only thing the federal reserve could have done, is not lower interest rates during the pandemic. They didn't need to, because the economy was fine. Even when the economy did drop during the pandemic, lowering rates didn't help. They lowered rates because of political pressure exerted by President Trump to buoy the stock market.
          Close, but not quite, you're correct they wanted to buoy the stock market, but no b/c of Trump, b/c they were still smarting from the last asset bubble popping in 2008. They trie

          • Re: (Score:2)

            by MobyDisk ( 75490 )

            After all, a helicopter drop of money does nothing to an economy with consumers in total lock down.

            I am confused by this statement because it did impact the economy, and quite significantly. The question of this thread is: since everyone seems to agree that we had too much stimulus, what could the Fed have done about it in hindsight?

            The occupant of the oval office at the time was irrelevant.

            The political pundits of the time didn't think so. The news talked of a war between the president and the federal reserve [politico.com]. They talked about Trump tying to fire Jerome Powell [brookings.edu] when he initially refused to lower rates.

            they wanted to buoy the stock market, but no b/c of Trump, b/c they were still smarting from the last asset bubble popping in 2008

            The federal reserve should not want to buoy the stock mar

    • Re: (Score:2)

      by Tablizer ( 95088 )

      To be fair, I would have made similar interest rate decisions in their circumstance. Covid flair-ups/variants have been hard to estimate/predict. And much of the inflation is caused by issues overseas, such as China's zero-tolerance policy and Russia's mucking with oil and Ukraine's exports. Hindsight almost always makes professional forecasters look stupid.

      That being said, inflation is an embarrassment to the Fed whether it's actually their fault or not, so there may be an incentive to distract from it.

    • Re: (Score:3)

      by gweihir ( 88907 )

      Unlikely. The DeFi problems are clear and at some time he has to say something. There is no pattern here.

  • 6 of 1? (Score:4, Interesting)

    by Anonymous Crowded ( 6202674 ) on Tuesday September 27, 2022 @11:22AM (#62918063)

    Now, I get there are nuances between the two frameworks, theoretically. On a long enough timeline, though, looking at multiple periods in human history, cannot we just extrapolate the endgame?

    When I say "we" I mean workers whose wage movements exist in a vacuum of any non-theoretical system when it comes to the price of goods. The only other given is that revolution is completely off the table in any regard; let's not go into why.

    So, my drawn-out question is:
    We've basically got (if we're using prose) oligarchs here under centralized banking, but decentralized we will end up under (equally phrased all 'artsy') factions of warlords.

    Call those whatever you want so we don't hurt anyone's feelings, but there doesn't seem like a huge upside to either IN PRACTICE . . .

    We MIGHT get stability under a centralized system (though we don't seem to have that now)
    We MIGHT get treated better or more competent economic handling under a somewhat more 'local' (but not really LOCAL) approach

    But we're at wishes and hopes.

    The only choice is to try to stay in the "best" possible job (treatment, hours, wages) for the best cost-of-living situation and trudge along, hoping that it will get better sooner rather than much later in the big picture.

    Aside from that (and I'm not trying to be super cynical here) we stay vigilant for 'real' red flags like human rights violations and hold the line there . . .

    I, for one, can see no difference in our new . . . whatever . . . overlords.

    • If I translate your comment into a question, it seems that you are asking: "Why *yawn* care about this at all when it doesn't change anything?"

      I sorta wish I had responded to you instead, but you can see my comment here: https://news.slashdot.org/comm... [slashdot.org]. The best answer I have is churn. Think of the world as a ball pit that kids play in. If you were to fill the pit to the top, the kids in it could not move (the balls would be pressing against the walls and ceilings, but would not give). If the balls we

      • It's *kind of* what I meant. The (bleak) view I'm at is that we're already at 'very bad' worldwide with actual military conflict, oppression of peoples, and (the lucky ones) deterioration of any small amount of wealth we've managed to get ahead on.

        "The way there" could get bad or very bad, so having a preference is definitely a concern. I almost never (never until lately) advocate ignorance or apathy. I've been walking a very straight line for the last 5 years of caring more about REAL problems and takin

        • I think I can make it worse, but not better, so if you want more sleep, stop now.. If we believe varying specialists, we have enough population for ~1.7 earths. Sure maybe that is overblown, maybe you think its more like 1.5x earths, the point is even if we are below 1 earth's worth today, population is growing with no sign of slowing. That is to say, we've got or will have .5 too little planet for the existing population. Look at world GDP per capita and you'll see it hasn't move much since 2008 (~10-11k U

          • all Westerners should be eating no more than 1200 calories a day, none should be weight lifters,

            All I can figure is you must be one of those scrawny "militant vegan" types to come up with a sentence this stupid and out of touch with basic human biology.

            • Wrong sadly on some accounts and rather wrong on all accounts. I'm more absurdist in philosophy, so I lack the militancy you imagine. I simply describe things with the data I have. If you have better data, I'm open to correction. I weigh 350ish pounds and am not vegan, so that is certainly wrong. I'm not ignoring biology, I'm noting Jesus would be telling you to carry your cross with dignity and to care for your brothers and sisters. And before you assume other stupid factors, I'm also not Christian. As for

  • I don't want this crap in my financial system (Score:5, Insightful)

    by rsilvergun ( 571051 ) on Tuesday September 27, 2022 @11:32AM (#62918095)
    It's extraordinaryly high risk. If we let this stuff propagate eventually Wall Street will start bundling it into securities like they did in 2008 and then passing around a bad debt until we have a massive economic collapse.

    We all know Wall Street is too big to fail. They've got a gun to our heads and we're all hostages. Why are we letting them have the gun in the first place? Regulate them so they can't collapse the economy. Stop pretending we're not going to bail them out we have to. They control the economy and they will collapse it and take all our jobs and businesses with it.

    The libertarian idea that you can just let the chips fall where they may does not work. We have centuries of evidence to prove that. We are the regulate businesses or we keep bailing them out.

    And no we can't just let the entire global economy collapse. You would have massive food shortages, water and sewage would eventually break down in major cities and eventually the military would roll in and install a dictator.

    • There are two problems you expose, but don't address. The first is, how is money made? Historically, it was a decentralized activity, done by smiths. Then it became banks. Money creation, even today, is not something controlled by governments. Most money is created by modern smiths, known as banks. Richard Werner, and others have documented this both academically and empirically: https://neweconomics.org/2012/... [neweconomics.org] , https://www.sciencedirect.com/... [sciencedirect.com] . Banking as a business sucks when QE/QT occurs, whi

      • Big Banks only work with big clients because when we let them work with small clients in the way you're suggesting they fleeced the small clients and caused massive economic crashes as people lost their houses.

        Mind you this wasn't done out of the goodness of anybody's heart the damage was so severe it affected the entire economy including those Banks balance sheets. But we couldn't count on them the regulate themselves because short-term the people doing the scams got promotions. In our entire system is

        • A conservative is someone who is cautious.

          I'm not saying this is wrong, I'm saying the conservative tends to ignore recursion, as that is the personality type. Capitalism naturally leads to this state. If you can get a generation to ignore maintenance, and a culture that won't fight that tendency, you eventually will. While this exact state has not happened before, we have the gilded age to look back at as an example and we know last time it took 2 world wars to break that funk, which was a world wide issue. Recurse on the problem. With nukes,

          • I don't think the problems you're raising are unique to capitalism.

            Also mechanistic isn't the phrase you're looking for it's accelerationist. We can't do that anymore. As YouTuber Beau of the fifth column pointed out it would only take a week or two of trucks not moving to destroy our entire civilization. And not just the cities the rural communities are just as dependent on those trucks as everyone else. They need the fertilizer brought in from the oil fields.

            I don't think we can get away from capi

            • Not to say I dislike being compared to folks like Deleuze, but I'm speaking at a much more fundamental level than that. I mean to say, I don't believe free will is likely, and while I acknowledge random exists and therefore no predictions are perfect, one can trace some high level directionality and assign rough probability to things. In other words, without free will, or even with limited free will, but with randomization, the world will have repeating patterns that rhyme, but will not be exactly the same.

  • ... to the dark equity and commodity markets. Are they proposing to shut those down as well? If not, then isn't this just denying something from the plebes that the patricians continue to enjoy?

    • Dark equity and commodity markets are still very well regulated. Do you know anything about them or just hear the name and assume they are unregulated? The participants in dark pools are highly-regulated broker-dealers.

      • Re: (Score:2)

        by PPH ( 736903 )

        Dark equity and commodity markets are still very well regulated.

        In what sense? Many of the SEC's transaction reporting requirements are imposed upon public markets like the NYSE and NASDAQ. There is nothing stopping investors from stepping outside this framework and trading shares between themselves. As long as they report to the SEC (hence the 'well regulated'). But if you think you can see the total volume of shares traded by flipping to the back pages of the WSJ, or checking quotes online, you are being fooled.You will never know what the total traded volume (and pri

        • Investors can trade between themselves and I have no idea if they even have to report the trade at all! But the broker-dealers who facilitate those trades - regardless of how the trades are routed - are regulated by the exchanges who list those shares who are highly regulated by the government. Try setting up your own brokerage in order to execute dark trades without registering with FINRA and see what happens. Then go setup the same for crypt-trading. You will immediately understand the difference.

          • Re: (Score:2)

            by PPH ( 736903 )

            who are highly regulated by the government

            But FINRA [wikipedia.org] is a private entity. That's not government regulation.

            • Yes, this is how almost all financial market regulation is done in the US. Whether that is good or bad policy is a different discussion. Stock exchanges are also private entities as well as commodity markets. They are also "first line" regulators who regulate their members and then the "first line" regulator is regulated by the SEC or other US government entity. Again, whether this privatized regulation is good or bad policy is a separate argument. Crypto finance companies seem to have existed for the
  • It's been obvious since the beginning that crypto-currencies were nothing but a wild west where charlatans and fraud-artists steal from the poor. Now that the crypto-bros have absconded with all the money, the fed wants to regulate what little is left? That's not meaningful regulation. The hammer should have come down the first time somebody engaged in a transaction that was nothing other than a shady security trade by another name.
  • Cryptocurrencies are NOT currencies. They are digital tokens that are backed by nothing significant. No country, no group with hard power, and very little soft power to boot. They simply don't meet the criteria for "currency".

    Same for Defi. It's a mystery box, run by some cryptic internet-based protocol based on buggy programming. You can put your money in and pray that things happen the way you expect. But, again, nobody with any real power is backing it. Nobody will take responsibility if things go wr

    • Re: (Score:2)

      by gweihir ( 88907 )

      Well, if they are gambling, they will be subject to regulation and taxes. So there is a lot of interest in avoiding that. Combine that with enough corrupt politicians and functionaries and you will find no interest in the truth you are calling for.

  • Fine (Score:2)

    by nagora ( 177841 )

    I agree. But, tell me, Mr Powell, how is your regulation of the normal financial world working out? Because it looks like the shit is about to hit the fan, and you've been on watch the whole way down the line.

  • Who exactly are you going to "regulate"? "Decentralized" means nobody is in charge.
  • That's still early in the process of being invented?

    This is premature.

    If anything, the regulation should just amount to requiring a big disclosure of "significant risk of total loss" statement be presented to all users prior to engagement.
  • Never argue with a man whose job depends on not being convinced.
    Upton Sinclair

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