Rep. Emmer says DeFi represents an alternative 'monetary philosophy' — and its time is coming

The U.S. Congress as a whole has taken barely any notice of the booming world of “DeFi.”

Still, at least one lawmaker in Washington is contemplating how blockchain-based decentralized financial services could be the basis for an alternative “monetary philosophy” to the one the U.S. subscribes to today.

Representative Tom Emmer (MN-R) is not shy about his admiration for crypto. He sits on the Blockchain Caucus in the House Financial Services Committee. He’s also advocated for tax policy clarity from the Internal Revenue Service (IRS), pushed for a de minimis exemption and safe harbor for crypto taxpayers and called for more transparency from the Federal Reserve on a potential digital dollar.

In an interview with The Block, Emmer said it’s too early to be talking about policy specific to the DeFi scene that has exploded this summer. But it's not premature to be thinking about how decentralized finance could shore up what he sees as weak points in the traditional way of doing things.

According to Emmer, a signature of the reigning monetary “philosophy” in the U.S. is centralized authority. This, Emmer said, makes wealth subject to the whims of “outside forces.” Since DeFi does away with central authority, it also lessens the opportunity for “manipulation,” he said.

Further, now that blockchain-based alternatives to traditional services like lending and even insurance are starting to emerge, it is easier to imagine how decentralized services could play a role in mainstream finance, Emmer argued. “You can do all the things that you do in the current financial system without the potential for outside manipulation, and I think that’s exciting."

To get a more tangible sense of his argument, consider the recent debate surrounding the Fed’s continued market interventions aimed at stemming economic distress caused by the COVID-19 pandemic. Some have said the central bank’s slashing of interest rates could create long term market stressors.

Emmer, for his part, said the Federal Reserve’s monetary policy, which has lowered interest rates to nearly zero, fails to recognize “the cost of time.”

Near-zero interest rate policy negates the cost of time by making savings less attractive, he argued, adding that he’s been reading up on the topic. There are good arguments, he said, that the central bank is effectively sending a message that there isn’t a tradeoff to spending today. But that is “only true if you die tomorrow,” he said.

This message is a “deception” that stunts economic growth, he argued, because instead of turning to new assets —perhaps digital ones — people are using cheap loans to bid up current popular assets. “The standard of value in the store of wealth can’t be subject to arbitrary change from the outside,” he said.

A more decentralized way of transacting could create more “immutable value,” said Emmer.

Congress likely won’t address things like decentralized borrowing and lending any time soon, as it still hasn’t even agreed on basic definitions in the context of cryptocurrency. But in the near-term, Emmer said safe harbor bills could allow the space to grow as those regulatory definitions and the characteristics of the assets themselves become clearer.

Either way, DeFi, like Bitcoin, isn’t going away, according to Emmer.

“There are a couple concerns that I have that I think we’re going to talk about, but just this concept — for those of us that really believe that value should recognize time, that value should create new value, not bid up assets — quite frankly I think DeFi’s time, might be a little ahead of itself, but it’s coming very soon.”