According to an official at Swiss National Bank, a combination of centralization & decentralization is the best mix for developing crypto and DeFi. Decentralized finance can be used with central bank digital currencies (CBDC). According to a Swiss central banking official, they have the potential to increase DeFi adoption.
Thomas Moser, a member of the Swiss National Bank’s governing board, said that CBDC could offer more stability and lower risk for the development of DeFi among many digital currencies.
DeFi must grow. Moser explained to Cointelegraph that stablecoins are the reason stablecoins were created. Moser said that stablecoins helped DeFi become more popular.
Centralised and decentralised banking can work in tandem
Moser said that centralization and decentralization can work together in digital currencies, despite being opposites. He pointed out that the most popular stablecoins in DeFi are Tether ( USDT ) and USD Coin( USDC ).
According to the official at SNB, “Therefore,” the official said that “something central” has already helped DeFi quite significantly.
A CBDC, unlike Tether and Circle, would have lower DeFi risks than a redeemable steadycoin. This is because central bank money does not carry counterparty risk. Moser stated. Moser said that a central bank cannot go bankrupt because it issues irredeemable currency.
Other digital currencies, such as Bitcoin ( Bitcoin) and Ether ( Ethereum), can also be irredeemable. This means that there is no counterparty risk. The official pointed out that their price is not stable enough to support sustainable DeFi growth.
Moser stated that an algorithmic stablecoin would not entail counterparty risks, but that he had not yet seen any successful algorithmic stablecoins. He was referring to the collapse in TerraUSD (UST), May 2022. The official said that a CBDC could offer more stability and lower risk than stablecoins.
Moser’s comments came just after the SNB, Cypherium and the blockchain company Cypherium released a joint document on blockchain technology. According to the study, CBDCs could be a valuable tool in stabilizing the cryptocurrency market.
Francois Villeroy de Gallau, the governor of Banque de France, made recent comments that CBDC was “not about central banks threatening decentralized finance.” He said that CBDCs are more about “providing additional tools to make DeFi sustainable and successful.”
Sky Guo, CEO of Cypherum, stated that he believes the combination between CBDC and DeFi technology is “destined” to occur.
DeFi can bring trillions of dollars in liquidity to financial markets
“DeFi can be fully automated and free CBDC of human limits. We can expect DeFi to bring hundreds of trillions of dollars in liquidity, large institutions entering this space, and real-world assets to move on-chain.
This is not the first time that a central bank has looked at possible interactions between CBDCs, DeFi and other financial instruments. At a conference hosted by the Bank for International Settlements Innovation Hub and SNB, central bank officials debated possible interactivity between DeFi-based market and CBDC.
As reported previously, the public was opposed to CBDC because of the lack of privacy. Many refer to such projects as “slavecoins” and question whether central banks will be willing to help DeFi adoption. The world hasn’t seen enough support for crypto from central bankers.
This news comes as major European banks continue to test cross-border retail transactions and remittances with CBDC. The Swedish, Norwegian, and Israeli central banks launched a new project to test international payments with CBDC.