Banking licenses for DeFi protocols

Brian Brooks, a former Coinbase lawyer and current director of the Office of the Comptroller of the Currency (OCC) of the US Treasury Department, believes that protocols from the decentralized finance (DeFi) space will take an important place in the banking industry.

In a column for the Financial Times, Brooks views DeFi as a fundamentally new phenomenon in the financial sector, beyond existing regulation. “DeFi turns everything upside down. They are using blockchain to provide services without human mediation, ”he writes.

Brooks calls the DeFi protocols “self-driving banks,” comparing them to self-driving cars, for which regulators were not prepared. “They will probably enter the masses before self-driving cars start flying,” he suggests.

The head of the OCC recognizes the advantages of DeFi protocols over traditional banks, such as the ability to find the best interest rates in the world, counteract borrower discrimination, and the risks of fraud and corruption. At the same time, such protocols have their own risks associated with liquidity, volatility and collateral management.

“There is also a risk that, in the absence of regulatory clarity, states will rush to fill the gap and create a set of inconsistent rules that hinder the orderly development of the national market. This is exactly what happened with self-driving cars, ”writes Brooks.

In this regard, he proposes to define the principles of DeFi regulation at the national level. Brooks acknowledges that it will be easier to check computer code against legal requirements than a traditional bank. According to him, DeFi is fully serviceable to society and will also reduce operating costs.

“Can the OCC even license the national bank to open source software that manages deposits, loans or payments if it has no executives? Not yet. Under today’s laws, developed under the conditions of the early 20th century, licenses can only be issued to individuals. But these outdated rules need to be revised, such as the requirement to still use fax, ”Brooks said.

Recall that the ShapeShift exchange is switching to the DeFi model.

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Karice Dabule

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