The Federal Reserve Bank of St. Louis is closely monitoring the DeFi market, especially assets that trade in Ethereum.

A recent report entitled “Decentralized finance: financial markets based on blockchain and smart contracts” comes with warnings about smart contract security, scalability and other risk factors, but is optimistic about innovation.

DeFi refers to financial services offered without a traditional financial intermediary, such as a bank or creditor. DeFi applications allow their users to borrow, lend or trade digital assets on an end-to-end basis. Ethereum is the blockchain on which most decentralized financial applications are built.

DeFi took off on a large scale in 2020. At the beginning of last year, there was less than $ 1 billion of blocked value in DeFi protocols and platforms. As of today, there are more than $ 40 billion, according to DeFi Pulse.

In general, the central bank sees that there are problems to be faced, but far from being insurmountable barriers. "If these problems can be resolved, DeFi can lead to a paradigm shift in the financial sector and potentially contribute to a more robust, open and transparent financial infrastructure."