The Federal Reserve Bank of St Louis has weighed in on the increasing importance of Decentralized Finance (DeFi) after conducting research. It also discussed the role Ethereum will be playing in its expansion.
The research paper was presented by Dr. Fabian Schär and focused on the increasing importance of DeFi and its impact on the financial ecosystem. He said that DeFi will become a force to reckon with when it finally addresses the issue of security within the sector.
DeFi still facing challenges
While admitting the future role DeFi could play in the financial ecosystem, Schär pointed out that it is still facing challenges when it comes to the enormous amount of hacks the DeFi space has recorded last year.
“If we look at the data regarding DeFi hacks, we find that a total of $150 million was lost to DeFi hacks in 2020,” he stated.
But Schär still praises DeFi, saying it has the potential of completely changing the traditional financial landscape.
In the research paper, he stated that DeFi makes use of smart contracts to create protocols replicating existing financial services in a more transparent, interoperable, and open way. According to him, these benefits will draw users closer to the DeFi space and away from the traditional financial space where everything is centralized.
DeFi can make the present financial system more robust
Schär also explained in the paper that DeFi can also make the present financial system more robust, transparent, and open, which is especially needed by financial institutions in the 21st century.
He added that the old ways will phase out very soon, but DeFi could lead to a paradigm shift in the financial industry.
DeFi’s growth within the past year has been very impressive. It has recorded a 700% in the total locked-in value, surpassing even the most optimistic predictions.