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Crypto regulation: here’s what the ECB and the Bank of England think

ECB wants globally coordinated strategy for DeFi regulation

The ECB noted in an article titled “A Deep Dive Into Crypto Financial Risks: Stablecoins, DeFi, And Climate Transition Risk” that the rapid expansion of crypto industry adoption and use cases requires serious examination of the sector in order to manage the risks it may present for financial stability.

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The research notes that “ if current trends continue, crypto-assets will pose financial stability issues” and that “financial stability risks arising from crypto-assets are increasing, and the crypto-asset ecosystem is becoming more complicated and interconnected. Therefore, strong supervision and regulation of crypto-asset markets is necessary.

The article notes that while investors are led to believe that stablecoins are meant to be free from volatility, but the fall of Terra’s UST showed that “stablecoins may not be so stable after all. The institution also cited Terra’s UST crash as a significant reason behind the importance of oversight and regulation.

The BoE believes that if cryptocurrencies are not regulated, they could pose a financial danger in the future

It is possible that this will happen in the near future, especially if regulatory frameworks are not established in due time. This was stated by the Bank of England’s (BoE) Financial Policy Committee in its July 2022 Financial Stability Report.

Due to this growing popularity, it is now crucial to develop clear regulatory frameworks that specify the conditions under which crypto-assets can be used. This will prevent financial risks that could arise from an unregulated environment.

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