Platformisation of Finance: DeFi’s Gradual Disintermediation Effect and the Leveraging of CBDCs in Smart Supervision

Abstract

The prominence of DeFi information intermediaries in emerging and developing economies is occasioning a paradigm shift in traditional intermediation towards a sharing economy. While the exponential growth in automation among peer-to-peer platforms is driving the realisation of sustainable finance, it is also effecting gradual disintermediation of incumbents in underground economies, and challenging the efficiency of traditional regulatory structures. With globalisation and recent increase in digitisation heralding broader interconnections among financial systems, fragmentations in regulatory approaches and protectionist policies may only worsen the impact of inherent risks in technology-based solutions. The paper examines the impact of DeFi platform’s dominance on central bank’s traditional regulatory mechanisms, and argues for the adoption of intermediated central bank digital currency operation model in promoting interoperability, and smart supervision through enhanced data-gathering, risk monitoring, and oversight of financial innovations.