Swiss National Bank Official: Central Banks Can Popularize Defi

Thomas Moser, a Swiss National Bank board member, has voiced his concern. CBDC offers the most significant stability potential and provides the fewest dangers to DeFi’s growth, he says (SNB). Moser told Cointelegraph; stablecoins are sectors such as DeFi that need a stable currency to grow.

The Push Toward Digital Asset Centralization

In contrast to widespread opinion, centralization is beneficial for DeFi, as Moser explained. Moreover, he argued that centralization and decentralization are not mutually exclusive in digital currency. The two most often used stablecoins in DeFi are Tether (USDT) and USD Coin (USDC). Moser identified these two stablecoins as being vast and centralized. 

According to the SNB official, “hence, anything centralized” has shown to be a great boon to DeFi. Moser said “counterparty risk is not included” in central bank money. CBDCs are more secure for DeFi than Tether and USD Coin, which can be exchanged for cash easily.

He said the bank could never fail because central banks can’t go bankrupt, and their currency is unredeemable. There is no counterparty risk since Bitcoin (BTC) and Ether (ETH), among other digital currencies, are not redeemable. Unfortunately, the official said, their pricing is not steady enough to allow perpetual DeFi expansion.

Moser said algorithmic stablecoins wouldn’t have counterparty risk like TerraUSD (UST) until its collapse in May 2022. According to the official, “a CBDC might give better stability and fewer hazards than stablecoins.”

Moser’s remarks follow a joint paper on blockchain and CBDC produced by the Swiss National Bank and Cypherium on September 26. According to the study, CBDCs can potentially improve the security of the whole cryptocurrency market, including DeFi.

Convergence Of Defi And CBDC

The publication cited the recent comments of François Villeroy de Galhau, the Banque de France governor. According to the governor, the CBDC is hardly about the central banks acting as “big brothers” and posing a danger to the decentralized financial system. CBDCs, he said, will focus on “offering additional instruments to assist make DeFi effective and sustainable.”

Sky Guo, CEO of Cypherum, believes the merger of DeFi and CBDC technologies is inevitable. He claims DeFi is automated and can set CBDC free from human constraints. Hundreds of billions of dollars will come into the market due to the adoption of CBDC in DeFi. Real-world assets and participation from significant institutions are both something people can anticipate.

The SNB’s research isn’t the first time a central bank has considered how CBDCs and DeFi may interact. Prominent bank officials explored the possibility of interaction between DeFi-based marketplaces and CBDC in April 2022. This was discussed during a symposium that the SNB and the Bank for International Settlements Innovation Hub convened together.

According to earlier reports, the population at large opposes the CBDC. Slavecoins are a common term for these initiatives, and critics say that’s because of the lack of privacy they provide. Given their lack of crypto-friendly actions, it’s uncertain whether central banks will help promote DeFi adoption.

This development follows ongoing trials of CBDC for international commerce and remittance payments by major European banks. On September 28, the Central Banks of Sweden, Norway, and Israel launched another pilot program to explore the feasibility of international transactions in CBDC.

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