another hearing in Congress from December 6-13

The biggest regulatory news of the week was a hearing for the U.S. House of Representatives Committee on Financial Services that focused solely on cryptocurrencies. The title of the event – “Digital Assets and the Future of Finance: Understanding the Challenges and Benefits of Financial Innovation in America” ​​conveyed a different feeling than the countless previous congressional sessions, which had covered everything from investor protection to security risks to threats to financial stability .

Judging by the reactions of many participants and industry experts, the exchange was received extremely positively, with the legislature asking informed questions and otherwise pretending to understand this novelty and not acting on the basis of preconceived ideas. Of course, there have been tiresome questions about Bitcoin’s environmental footprint and Rep. Brad Sherman’s anti-crypto outrage, but it ultimately seemed like a constructive dialogue between the digital asset industry and lawmakers that we have over the years wanted to see the passage of time.

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Target group of the industry

another hearing in Congress from December 6-13
another hearing in Congress from December 6-13

The hearing convened by the Chair of the Financial Services Committee, Maxine Waters, focused on the role of cryptocurrency exchanges, the growth of the stablecoin sector, and general issues related to general digital asset regulation. Several of the top cryptocurrency CEOs have been appointed to represent the cryptocurrency space.

Among the most prominent topics discussed in the House of Representatives was the decentralization of the digital ecosystem powered by cryptocurrencies – a politically beneficial aspect at a time when many US lawmakers are uncomfortable with the US tech giants coming to power – as well the reluctance of US regulators to give in to certain cryptocurrency investment products that might be viewed as a symptom of a fragmented regulatory approach. The connection between the global role of the US dollar and the growing demand for stablecoins also received a lot of attention.

BPI: Afraid of DeFi?

In order not to get too carried away by the apparent victory in Congress, take note of the Bank for International Settlements’ latest report on decentralized finance. The “Bank of Central Banks” has carefully studied the vast space of decentralized finance and developed a handful of alarmist slogans such as “The Illusion of Decentralization” to describe it.

BIS analysts are concerned about some structural aspects of the DeFi landscape, such as liquidity mismatches and lack of buffers like banks. The report’s authors argue that the protocols regulating DeFi activities harbor risks of centralization, which could lead to a concentration of power within these systems in the hands of a few. These claims are sure to raise many eyebrows, especially those who know the DeFi realm inside out.

CBDC monitoring

The BIS’s preference for more controlled financial innovations is evident in the news that its specialist department, the BIS Innovation Hub, is actively involved in testing cross-border digital processing on a euro basis, together with the central banks of Switzerland and France. The experiment was deemed a success, but the parties involved found that it did not warrant the final issue of a European CBDC.

In other news on centralized digital currency, a biennial research by the Reserve Bank of Australia ended with a report highlighting the potential of a central bank wholesale digital currency to improve the efficiency of financial market transactions.

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