Beware of Crypto, DeFi – Indian Chief Economic Advisor

Indian Chief Economic Advisor recently warned about the risks inherent in innovations like crypto and decentralised finance also called ‘DeFi’. The statement was made in an event organized by ASSOCHAM, a non-governmental trade association in India. As per the CEA, ‘the lack of regulation or any watchdog has created an atmosphere of tension and distress’.

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The Problem With Crypto Right Now – No Regulatory Authority

Cryptocurrency is a digital currency developed to function as a medium of exchange. The catch here is the absence of any regulatory or central authority. In the crypto-currency markets and DeFi’, there is no central authority or governmental interference, hence, the investors are vulnerable to more risks. This has been a matter of concern for the past few years. To understand the issue better, one needs to look at what ‘DeFi’ actually means.

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Decentralized finance or popularly called ‘DeFi’ is a financial technology based on secure distributed ledgers identical to the ones used by cryptocurrencies. The ‘DeFi’ system removes any kind of control banks or any institution has on money or other various monetary products.

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Absence of Regulation- Different Countries, Different Reactions

Due to the absence of any central or governmental authority to regulate the transactions in the cryptocurrency markets, it has become a matter of urgent concern. The investors are expecting to be provided with some protection to face the risk.

Countries are introducing legislation to bring these transactions under the government’s eye. Watchdogs are being set up by the government to ensure the protection of its citizens. Off late, some of the countries that introduced such provisions are South Korea, Japan, England etc.

South Korea is working on the introduction of its “self-regulatory” system inspired by the latest fall in the value of UST and LUNA stablecoins. It aims to prevent a repeat of such incidents.

Also, Japan has passed a stablecoin regulation bill to protect its investors. It makes it mandatory to link such digital money to a legal tender like yen. England has also proposed amendments to regulate crypto companies.

Different countries have different reactions and solutions but the problem is the same i.e., the absence of regulation.

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India’s Chief Economic Adviser’s Statement about Crypto

Indian Chief Economic Adviser, Mr. V. Anantha Nageswaran has warned about the risks inherent in innovations like crypto and decentralised finance also called ‘DeFi’.

At an ASSOCHAM event, referring to the cryptocurrency, the CEA stressed the need to have a watchdog or a centralized regulatory authority. He, supporting the RBI Deputy Governor T. Rabi Sankar on DeFi and crypto, said that the current state of affairs is distressing. The present case at hand is of arbitrage with regard to DeFi and crypto than actual financial innovation.

The CEA also made it very clear that to remark cryptocurrency as an alternative to ‘fiat currency, it’ll have to fulfil many objectives. In his words, “It has to be a store of value, it has to have widespread acceptability, and it has to be a unit of account … In all these cases the new ‘innovations’ such as crypto or DeFi are yet to pass the test.”

While other countries are bringing legislation to regulate the cryptocurrency market, India too is working on its cryptocurrency policy.  Regarding the same, the Finance Minister engaged with the International Monetary Fund (IMF) and the World Bank. It was concluded that due to the decentralized structure of the cryptocurrency, it becomes difficult to regulate and manage the operations.

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This is why the Indian government is working on a plan to place a watchdog to keep an eye on the cryptocurrency markets. The need of the hour is to have some kind of regulation and management to safeguard the interests of investors.

Many startups and projects are trying to solve several issues through crypto and DeFi, this is why it becomes a must to instil trust in the minds of investors and common people.

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Cryptoassets are a highly volatile unregulated investment product. No UK or EU investor protection.