A new report from the Financial Stability Board takes aim at the world of decentralized finance (DeFi), adding that the “rapidly evolving” niche “does not differ substantially from traditional finance.” The FSB is an international organization representing all of the major G20 economies that issues advice and recommendations on the world’s financial system. “In attempting to replicate some of the functions of the traditional financial system, DeFi inherits and may amplify the vulnerabilities of that system,” the report reads. The wide-ranging report touches on the similarities with traditional finance, as well as criticizing the niche’s “actual degree of decentralization,” the danger of crypto bridges, and bugs found in the smart contracts that underpin DeFi’s applications. The FSB argued that the “most concerning” vulnerability, however, remained that of “run risk” on lending platforms and stablecoins. “The automatic liquidation of collateral in smart contracts, which can be applied unevenly among participants depending on the protocol design, is a primary reason why deleveraging dynamics in DeFi can be especially disruptive,” the report reads.
Full report : G20 Financial Stability Board Report Flags DeFi ‘Vulnerabilities.’
