Israel Central Bank Says DeFi Smart Contracts May Need Oversight

A report Monday (June 20) from Israel’s central bank suggested that decentralized finance (DeFi) smart contracts may require oversight to prevent “malicious” acts, Bloomberg wrote.

Researchers from the Bank of Israel conducting the bank’s first experiment in a central bank digital currency (CBDC) reported that smart contracts could be written on the Ethereum blockchain in “malicious” ways that would lead to the loss of cryptocurrency.

“An important question … is who writes the smart contract,” the report said, according to Bloomberg. “Allowing anyone who wanted to to write the smart contract on the blockchain may pose a significant risk to the entire system.”

The central bank ran tests on the Ethereum blockchain to see how transfers are made between digital wallets, how transactions are completed and the level of privacy.

Israel is among about 100 nations that have either issued a CBDC or are considering one. On Friday, U.S. Federal Reserve Chairman Jerome Powell said a digital dollar would boost the long-term strength of the dollar.

See also: PYMNTS Blockchain Series: What Is Ethereum? The Blockchain That Moved Crypto Beyond Currency

Meanwhile, in the U.S., a bipartisan bill creating a regulatory framework for cryptocurrency would classify digital assets as commodities rather than securities, PYMNTS wrote last week.

This would put crypto largely under the rule of the Commodity Futures Trading Commission (CFTC) instead of the Securities and Exchange Commission (SEC). The industry anticipates the CFTC would rule with a lighter hand than the SEC, whose chairman, Gary Gensler, has described the crypto industry as the “Wild West of finance.”

See also: Bill Giving CFTC Regulatory Control Would Reshape Crypto