Fabian Schär, a member of the Expert Council of the Association of Certified Professionals,
published an analysis of decentralised finance in the September 2022 edition of the
International Monetary Fund’s Finance & Development.
The publication examined both the potential and the limitations of decentralised finance,
commonly known as DeFi.
DeFi uses public blockchain networks and smart contracts to create financial applications that
can operate without relying on traditional financial intermediaries in the same way as
conventional financial services.
The technology has attracted attention because of its potential to create more transparent and
accessible financial infrastructure. Transactions and smart-contract activity on public
blockchains can generally be observed and analysed, while applications can interact with each
other through shared technological standards.
At the same time, technological decentralisation does not eliminate financial or operational
risk.
Smart-contract vulnerabilities, dependence on external information, governance structures
and concentrations of influence can create significant risks. Understanding the actual
structure of a DeFi application is therefore essential when evaluating how decentralised the
system really is and where responsibility and control remain concentrated.
Schär’s work is particularly relevant to the continuing discussion about how emerging
financial technologies should be regulated.
A regulatory framework designed for conventional intermediaries cannot always be
transferred directly to decentralised infrastructure. At the same time, the use of blockchain
technology does not by itself mean that an application operates without identifiable control or
intermediaries.
The development of DeFi therefore raises broader questions about transparency, governance,
financial stability and the future relationship between traditional and blockchain-based
financial infrastructure.
Fabian Schär is Professor of Distributed Ledger Technology and Fintech at the University of
Basel and Managing Director of its Center for Innovative Finance. He is a member of the
Expert Council of the Association of Certified Professionals, with expertise in Finance,
Financial Innovation and Emerging Technology.