The Financial Stability Board (FSB), a financial regulator funded by the Bank for International Settlements (BIS), is pushing for international regulation of decentralized finance (DeFi).
On February 16, the FSB published a report on the financial stability risks of DeFi, highlighting the main vulnerabilities, transmission channels, and evolution of DeFi.
Despite offering many “new” services, DeFi “does not differ substantially” from traditional finance (TradFi) in its functionssays the authority in the report. When trying to replicate some functions of the TradFi, DeFi increases potential vulnerabilities due to the use of novel technologies, the high degree of ecosystem interconnections, and the lack of regulation or enforcement, the FSB argued.
Furthermore, the authority claimed that the actual degree of decentralization in DeFi systems “often deviates substantially” from the claims of the founders.
To prevent the development of financial stability risks associated with DeFi, the FSB is cooperating with global standards bodies to assess DeFi regulations in multiple jurisdictions.
In this regard, a key element to consider would be DeFi user entry points, including stablecoins and centralized crypto-asset platforms, the FSB said, adding:
“The FSB may consider whether subjecting these types and entities of crypto assets to additional investor and prudential protection requirements, or intensifying enforcement of existing requirements, could reduce the risks inherent in closer interconnections.”
The FSB highlighted that asset-backed stablecoins like Tether (USDT) and algorithmic stablecoins like Dai (DAI) play an important role in the DeFi ecosystem through their use in buying, liquidating, trading, lending, and borrowing other crypto assets. . The regulator suggested that the rise of stablecoins would also likely increase the adoption of DeFi solutions by retail and corporate users, in addition to facilitating the adoption of crypto assets as a means of payment.
“Regarding liquidity issues and maturity mismatch, stablecoins are a crucial area of attention,” the FSB wrote, stressing the need to understand the peculiarities of different stablecoins in order to control the risk they pose to the cryptocurrency industry. , including DeFi ecosystems.
The news comes amid increasing scrutiny of some of the major stablecoins by global regulators. On February 13, Blockchain infrastructure platform Paxos Trust announced that it would stop issuing Binance USD (BUSD) stablecoins amid an ongoing investigation by New York regulators. The New York Department of Financial Services ordered Paxos Trust to stop issuing BUSD, claiming that BUSD is an unregistered security.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information presented here should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
Investments in crypto assets are not regulated. They may not be suitable for retail investors and the entire amount invested may be lost. The services or products offered are not directed or accessible to investors in Spain.