This is the title of Bank of England senior advisor, Caroline Wilkins' speech at the UCL Centre for Blockchain Technologies yesterday, with the call to action for the financial sector to "Get up, Stand up", to demand change.
She was of course talking about the fundamental need for governance in what has been termed decentralised finance or DeFi.
We commented in our recent blog on a creep toward centralization in DeFi.
Wilkins has eloquently made the cogent argument that DeFi does not provide the individual sovereignty and democratized financial freedom that the supporters for the new crypto world order would otherwise have you believe.
In particular she quoted a study from April 2022 by the National Bureau of Economic Research on Cryptocurrencies and Decentralized Finance, which revealed that the top ten validators hold between 47% and 100% of the stakes in a sample of the 50 largest by market capitalization proof-of-stake platforms.
This is a phenomenal concentration of power, with the potential effect of enabling those with voting power in the ecosystem to dominate.
She makes the point that at the end of the day someone must be accountable for the decisions and outcomes made in the ecosystem. This is likely to point to further regulatory scrutiny.
There are also real effects when things go wrong. Crypto scams are the most commonly reported scam to the UK Finacial Conduct Authority.
Wilkins argues there is a real role for the official sector to support sustainable innovation by building a legal and regulatory structure with best practice in governance, shared codes of conduct and high expectations of transparency, that is crucial to underpin public trust.
Now is the time for good governance.
[T]echnology alone cannot get around the fact that decisions must be taken in the crypto ecosystem. At a minimum, someone is making decisions regarding the system code, and influencing whether it will deliver what it says it will. ... Major investors must "get up, stand up" to demand change. It is critical that industry adopt best practices and codes of conduct to reinforce trustworthy behaviour and culture. We need to face the practical limits to decentralisation that come from asymmetrical understanding of the system and the inability to plan for every eventuality in an uncertain world.
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