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Bank of England Deputy Governor Jon Cunliffe share thoughts on cryptocurrency regulation and decentralized finance (DeFi) at a conference on November 21. He intended to speak about stablecoins and central bank digital currency (CBDC), Cunliffe told a conference in Coventry, but the collapse of FTX as he wrote his draft speech also led him to some more general observations.

FTX and a number of other centralized crypto-asset exchanges “appear to operate like conglomerates, combining products and functions within a single company” without the tight controls of traditional finance, Cunliffe said. There is “tentative and limited evidence” that the failure of FTX has spurred transfers to decentralized platforms, although there was little reassurance about this:

“It is unclear to what extent these platforms are truly decentralized. Behind these protocols are usually companies and stakeholders who derive revenue from their operations. Moreover, it is often unclear who, in practice, controls the governance of protocols.

Regulation is necessary to protect consumers, protect financial stability and encourage innovation, Cunliffe said, and:

“While the crypto world, as demonstrated in last year’s crypto winter and last week’s FTX implosion, is currently not big enough or sufficiently interconnected with traditional finance to threaten the stability of the financial system, its links with traditional finance have developed rapidly. ”

The Bank of England, the Financial Conduct Authority and HM Treasury are setting up a regulatory sandbox to refine “technologies that have been pioneered and refined in the world of crypto, such as tokenisation, encryption, distribution , atomic settlement and smart contracts” that provide benefits for the financial system.

Cunliffe quoted himself comparing crypto assets to “unsafe aircraft” to demonstrate the role of regulation in innovation. Crypto “will only be developed and widely adopted within a framework that manages risk to existing standards,” Cunliffe said. Failure to control risk could present an existential threat to crypto, he said, citing a Nov. 17 essay in the Financial Times that suggests the crypto could “implode under the pressure of its dangerous and unhealthy business practices” and, according to the authors, financial leaders should allow that to happen.

Related: BoE Policy Discussion: DeFi Better Implement Good Governance Before It’s Too Late

Cunliffe said the Bank of England would issue an advisory report on the issuance of a GBP CBDC towards the end of the year. He said:

“I would like to emphasize that this work and any future decision to introduce a native digital book should not be seen in the context of the status quo but rather in the context of the evolution of current trends in money, payments and technology.”