Earlier this month, the U.S. central bank board published a paper that provides a broad overview of the DeFi ecosystem and analyzes the potential benefits and risks of DeFi adoption. The paper cautions that while DeFi "has not yet reached the point of becoming systemically important," policymakers should assess DeFi's impact on "financial stability" in the event DeFi increases in popularity and usage. That increase may occur, the paper finds, if cryptocurrency prices stabilize, if blockchain services gain greater interoperability with the existing payments and financial systems, or if crypto assets become a separate, parallel financial system that provides real economy services. The paper also examines how DApps, smart contracts, and other DeFi products and services operate in the DeFi ecosystem, and it emphasizes the need for greater regulatory oversight in the space overall. Following the paper's publication, Michael Barr, the recently appointed vice chair of the U.S. central bank board, gave his first official speech, echoing some of the paper's call for greater oversight in crypto. Specifically, Barr stated that greater transparency overall was needed and that banks engaged in crypto-related activities need to have appropriate measures in place to manage novel risks associated with those activities and to ensure compliance with all relevant laws, including those related to money laundering.

Earlier this week, Michael Hsu, acting chief of the Office of the Comptroller of the Currency (OCC), also spoke out on the crypto industry. He remarked that under his direction, the OCC had adopted a cautious approach to permitting national banks and federal savings associations to engage in certain crypto activities. He lauded that approach, given the fragility in the crypto ecosystem, as evidenced by the Terra stablecoin collapse in May and its aftermath, in which billions of dollars in investor value were wiped out. Hsu stated that the OCC is building on the work it has accomplished over the past five years in the fintech/crypto space with regard to policy and service providers and related to IT and operational resilience supervision. He said that the OCC is also working closely with fellow agencies to help ensure benefits from shared intelligence and understanding. However, he cautioned, "Much more work remains to be done."

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