The Mirage of Decentralized Finance

Abstract

In response to new developments in financial structure and technology, and galvanized by recent eruptions of volatility, officials from Washington to London to Brussels are grappling with how to regulate the cluster of practices known as decentralized finance, or DeFi. This is a political as well as an economic question. This is to say, the outcome will involve interests in addition to considerations of efficiency. Although advocates of decentralized finance often invoke laudable goals like reduced costs and increased inclusion, it is worth examining what else rides those coattails.