Bank for International Settlements: Crypto Market Has Reached “Critical Size” and Needs to Be Aware of Stability Risks

Odaily Planet Daily News The Bank for International Settlements (BIS) this week released a paper exploring the financial stability risks of cryptocurrencies and decentralized finance (DeFi). Most central bank officials believe that cryptocurrencies are too small and self-contained, so they do not yet pose a financial stability risk. The report states that the cryptocurrency market has "reached a critical mass," although it still believes that cryptocurrencies have little connection with traditional finance (TradFi). However, the issuance of Bitcoin ETFs, the expansion of stablecoins, and the tokenization of real-world assets (RWA) are changing this situation. In the report, it is recommended to further study the role of DAOs in governance, how they affect financial stability, and how regulators can get involved. In outlining how DeFi works, the difference between DeFi protocols and applications is pointed out, the latter of which usually have user interfaces and "centralization vectors." In other words, dApps are potential regulatory touchpoints. At the same time, it is imperative to study the impact of RWA tokenization on financial stability, including the systemic risks of closer links between DeFi and TradFi. In addition, stablecoins play a core role in DeFi, and their potential instability is an area that requires further analysis. (LedgerInsights)