##ization, and smart contracts are just technologies for trading that can be used in defi or also to improve efficiency in centralized finance. that is why i see them as complements. stablecoins are another important innovation in defi. stablecoins were created in the crypto universe in hopes of providing a " safe " asset with a stable value for trading. nearly all stablecoins are pegged to the u. s. dollar one - for - one. they provide an opportunity for buyers and sellers to transact in a decentralized fashion with the stablecoin used as the settlement instrument. because they are effectively digital currency, stablecoins can reduce the need for payment intermediaries and thereby reduce costs of payments globally. but their safety is not assured. history is replete with cases in which synthetic dollars became subject to runs. stablecoins thus face all of the same issues any substitute for genuine u. s. dollars faces. if appropriate guardrails can be erected to minimize run risk and mitigate other risks, such as their potential use in illicit finance, then stablecoins may have benefits in payments and by serving as a safe asset on a variety of new trading platforms. these technologies will almost certainly lead to efficiency gains over time, but as they develop, we should think carefully about their role in the broader financial landscape. is it really possible to completely decentralize finance using these technologies? the answer is obviously " no. " intermediation is still valuable for the average person, and we see this by the existence of trading exchanges in the crypto world. all these platforms involve giving custody of one's crypto - assets to an intermediary, who conducts trades on behalf of the client. this reintroduces the need for trust in these platforms just as trust is needed in modern banking systems. returning to the technologies behind defi, one must ask whether there are unique risks associated with the use of these technologies. if so, what is the nature of these risks? are they contained to just those people directly engaging with the technologies, or could there be broader spillovers to society? for example, can these technologies increase the risk of inadvertently providing funds to bad actors? in centralized finance there are regulations that require banks to know who their clients are. are similar rules and regulations needed around some of these new technologies? when it comes to our financial plumbing, which affects every person or business in one way or another, i think a

balanced view of expeditious disruption and long - term sustainability is merited. so where does that leave us? ultimately, i believe that advances in technology have the potential to drive efficiency gains in finance, just as technological innovation has done for centuries. while there are certain services emerging through defi that cannot be provided by centralized finance, the technological innovations stemming from defi are largely complementary to centralized finance. they have the potential to improve centralized finance, thereby increasing the significant value that financial intermediaries and centralized financial markets deliver. i look forward to seeing the continued evolution of financial technology and the benefits that evolution will bring to the households and businesses served by the financial system. 1 i would like to dedicate these remarks to an old friend and longtime participant of this conference, paul klein, who passed away unexpectedly two months ago. the views 4 / 5 bis - central bankers'speeches expressed here are my own and are not necessarily those of my colleagues on the federal reserve board or the federal open market committee. 2 see ariel rubinstein and asher wolinsky, " middlemen, " the quarterly journal of economics 102 ( august 1987 ) : 581 – 93, https : / / academic. oup. com / qje / article - abstract / 102 / 3 / 581 / 1887969. 3 see benjamin bromberg, " the origin of banking : religious finance in babylonia ( pdf ), " the journal of economic history 2 ( may 1942 ) : 77 – 88. 4 see national aeronautics and space administration, " spinoff from a moon tool ( pdf ), " january 1, 1981. 5 see christopher j. waller, " thoughts on the crypto ecosystem " ( speech at global interdependence center conference : digital money, decentralized finance, and the puzzle of crypto, la jolla, ca, february 10, 2023 ). 5 / 5 bis - central bankers'speeches