In brief

  • Brian Brooks, the former Coinbase executive turned Comptroller of the Currency, has written an op-ed about DeFi for the Financial Times.
  • According to Brooks, DeFi protocols that can function without human moderation pose “new risks” from a regulatory standpoint.
  • The operative analogy is the advent of self-driving cars—self-driving banks, suggests Brooks, could be regulated similarly.

In a new opinion piece for the Financial Times, Brian Brooks, the current US Comptroller of the Currency, argues that decentralized finance (DeFi) could pave the way for a kind of “self-driving bank.” With a set of new regulations in place, says Brooks, national bank charters might one day be granted to DeFi protocols.

DeFi protocols are automated, algorithmically-governed money management systems that essentially skip out on the need for human moderation in financial services and products. 

Brooks draws an analogy to the advent of self-driving cars:

“Most automotive laws — on speed limits, giving signals, drink-driving — had been designed to protect against dangerous drivers, not dangerous cars. Autonomous vehicles brought new risks that legacy rules never considered… Banking is headed down the same road.”

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Brooks, former chief legal officer for leading US cryptocurrency exchange Coinbase, explains that the Office for the Comptroller of the Currency (OCC) has plenty of regulations in place for the people who work at banks, but that as “self-driving” banking systems proliferate, and actual bankers are bypassed entirely, federal agencies need to come up with an entirely new set of protections.

Brooks suggests there’s a risk that “in the absence of federal regulatory clarity, US states rush to fill the void and create a patchwork of inconsistent rules that impede the orderly development of a national market.” 

Since his appointment to the OCC last year, Brooks, a former Coinbase executive, has redirected much of the regulator’s focus to cryptocurrencies. Earlier this month, Brooks’ OCC released a letter stating that US banks can use blockchains and stablecoins to facilitate digital payments.

The Trump-appointed Brooks has also faced criticism for his fixation on crypto: in November, six lawmakers (including progressives Rashida Tlaib and Ayaana Pressley) wrote that Brooks was spending too much time on digital payments and not enough on helping out the businesses and communities that have suffered most during the pandemic.

No one should be surprised that Brooks, a federal regulator, is making an argument in favor of federal regulation, but there’s reason to think DeFi requires this kind of regulatory attention. Last year, the blockchain data company CipherTrace reported that DeFi’s lack of regulation makes it an appealing target for hackers. And “rug pulls”—a type of pump-and-dump scam—remain a very real risk in DeFi, since many of the products within this still-nascent industry are built by anonymous developers.

There’s a nearly utopian cast to the end of Brooks’ op-ed: “Could we usher in a future where we eliminate error, stop discrimination, and achieve universal access for all? Optimists like me think so.”

Though the goal of “universal access for all” is still a long way off, the need for regulatory clarity is at least top of mind for Brooks, whose term doesn’t expire until 2025.

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DeFi is Paving the Road for 'Self-Driving' Banks, Says OCC Chief

by Joe T. Stanley
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