How Central Banks Destructively Influence Decentralized Finance?

Existing systems, such as central banking, operate effectively in some manners and ineffectively in others for a variety of reasons.

It has been claimed that Modern money is debt and debt is money. Today’s global monetary system likewise represents a sort of credit–debt relationship. The current modern economic reality we have adopted propagates bewilderment for innovators in decentralized finance because it combines the roles of government and money implicitly.

The current debt instruments are produced by banking systems with sovereign authority. Modern banking systems have incurred unprecedented damages and still are wreaking havoc on people’s life, although they are flexible and powerful enough for administrators to manage the economic upheavals and shockwaves like what we are undergoing. Nevertheless, independent monies follow an absolutely different path

In an article published by Friedrich Hayek, an Austrian-British economist and winner of the 1974 Nobel Memorial Prize in Economic Sciences, he said governments should allow the private issuance of money, such that individuals can choose to use whichever money they want. Choice would lead to competition, he argued, placing a healthy pressure on central planners.

In the modern economy, the dollar is a reserve currency. Although it is a crucial privilege, it might lead to an extreme burden. The US can’t stop supplying the global economy with dollars even if it hurts it, and the global economy can’t stop demanding them. This conflict of interests is known as Robert Triffin’s dilemma, and it is believed that from this dilemma we’ve seen excessive U.S. indebtedness and risks magnified to disastrous proportions.

The MakerDAO protocol seeks to decentralize a debt-based system of money and promises a stable currency in the spirit of central banking. Systems of this nature are flawed when disconnected from sovereign authority in general because such free market systems operate by choice and incentive. an independent system would need to be uncensorable to achieve the desired effect.

Keeping in mind that we already have an effective centralized system with the necessary authority to bail others out in times of need, it is unclear what purpose there is for things like MakerDAO, as they cannot provide customers with meaningfully new choices.

Unlike a bank, Bitcoin has no balance sheet and possesses no notion of credit or debt. In other words, the protocol maintains only what users own, not what is owed to them or what they owe to others. It promises only scarcity and censorship resistance. As a result, Bitcoin cannot be bailed out, cannot bail others out and requires virtually no supervision.

Bitcoin is a risky asset relative to the dollar. It provides optionality because its growth rate is easier to disconnect from things like output and consumption. It adds diversity to the ecosystem as a risk asset.




Counos Platform is an online peer-to-peer platform with a wide variety of financial services which meets sophisticated online financial demands of Counos users.

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Counos Platform is an online peer-to-peer platform with a wide variety of financial services which meets sophisticated online financial demands of Counos users.

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