Central banks can push DeFi into the mainstream – Swiss National Bank official

A combination of centralization and decentralization is a perfect mix for crypto and DeFi development, says National Bank official switzerland.

Central bank digital currencies (CBDCs) can work well with decentralized finance (DeFi), and they have a lot of potential to drive DeFi adoption, according to a Swiss central bank official.

Among many types of digital currencies, it is the CBDC that could provide more stability and reduce risks for the development of DeFi, according to Thomas Moser, Member of the Board of Directors of the Swiss National Bank (SNB) .

To grow, DeFi needs stable money, which is why stablecoins were invented, and stablecoins clearly helped DeFi become more popular, Moser told Cointelegraph.

Despite their polar opposites, centralization and decentralization of digital currencies can actually work together because centralization is not bad for DeFi, Moser explained. He noted that major stablecoins like Tether (USDT) and USD Coin (USDC) are the most widely used stablecoins in DeFi, both of which are centralized.

"Therefore, 'something centralized' has already helped DeFi a lot," the SNB official said.

Unlike Tether or USD Coin, a CBDC would entail less risk for DeFi than a redeemable stablecoin because central bank money “does not entail counterparty risk,” Moser said. "A central bank cannot go bankrupt because it is issuing irrecoverable money," he added.

Other types of digital currencies, including cryptocurrencies like Bitcoin (BTC) or Ether (ETH) are also unrecoverable, which does not involve any counterparty risk. However, their price is not stable enough to support sustainable DeFi growth, the official noted.

"Algorithmic stablecoins would also not incur counterparty risk, but so far we have not seen success...