Fed of St. Louis Says DeFi Released Wave of Innovation

DeFi is getting an unexpected and huge new backer: The Federal Reserve of St. Louis.

“DeFi offers exciting opportunities and has the potential to create a truly open, transparent, and immutable financial infrastructure,” reads the latest report from one of the 12 regional Reserve Banks.

The report cites learnings from projects like Maker, Uniswap, Balancer, dYdX, Synthetix and Yearn to provide better scope on the blossoming DeFi ecosystem. It also provides a breakdown of the “DeFi Building Blocks.”

The report showcases how Dai has battled to maintain its peg among a rapidly growing supply, how Uniswap’s ‘smart-contract based liquidity pools’ work and how Maker allows for permissionless, overcollateralized loans.

While these topics aren’t new to most readers, the fact that the Federal Reserve has displayed such an in-depth understanding of the DeFi ecosystem bodes well for the emerging space as ‘the future of finance’.

Still, it’s not all sunshine and rainbows. Beyond the positive light, the report cites smart contract errors, admin keys and external data as areas with potential risk.

“Many protocols and applications use external data sources and special admin keys to manage the system, conduct smart contract upgrades, or even perform emergency shutdowns. While this does not necessarily constitute a problem, users should be aware that, in many cases, there is much trust involved.”

For those looking to show their friends, family and colleagues why DeFi is worth paying attention to, look no further than this report.