The acting U.S Comptroller of the Currency, Brian Brooks, now addresses himself as a DeFi optimist due to his interest in digital banking. He believes that algorithmic banking is the best option for the banking sector because it can eliminate human error and discrimination.
However, legislators are not ready to give a bank charter to algorithms. Although the OCC announced that individuals could settle money transfers with stablecoins, many crypto enthusiasts did not accept the news, as it did not entirely support the idea of decentralization.
But according to the op-ed written by Brian Brooks in Financial Times, he explained his optimism about decentralized finance and support for banks to work via algorithms, without human interference.
He also compared the emerging DeFi technology to self-driving cars, stating that self-driving banks could be more efficient than the current banking system, as DeFi has notable features needed in the banking sector.
In his words:
“Could we usher in a future where we eliminate error, stop discrimination, and achieve universal access for all? Optimists like me think so.”
The Comptroller further proposed that legislators need to work together to bring banking into the future by embracing current DeFi projects.
The risks associated with algorithmic banks and DeFi projects
While he exercised his prowess as a DeFi optimist, Brooks did not fail to highlight the risks associated with calculating collateral digitally and providing loans algorithmically. He cites liquidity risk, such as high-frequency trading, that could increase equity self-offs. In other words, trusting an algorithm to green light liquidations could result in manipulation or flash crashes.
Nonetheless, Brooks notes that these risks are similar to already-existing risks seen by other emerging technologies, especially the current banking system. The major disadvantage is that charters are given to humans, not computers. In other words, the current legislation, based on archaic technology, does not provide DeFi bank charters.
“Under the current law, charters are only issued to human beings. But these “old-fashioned” rules need to be revisited, plus other regulations that still authorize the use of fax machines.”
While Ripple Labs and regulators are yet to conclude their cold war, there are speculations that the U.S government will be more uptight with the crypto industry in the coming years. Meanwhile, this op-ed written by the Comptroller is relatively warm to DeFi-based banks. But it does not entirely support the idea of an international-dollar-ending currency, which is the dream of some crypto enthusiasts.