Italy’s top banking authority has called for a “robust, risk-based” regulatory framework for stablecoins, which could help prevent a worst-case scenario — a “run” on stablecoins.
The central bank recently freed The June “Markets, Infrastructure and Payment Systems” report called on regulators to apply the same standards of financial conduct to stablecoin issuers in the industry.
#Bank of Italy #26 June Alexandra #perazelli The changing regulatory environment is discussed #Digital Assets exist @pointzeroforum “The Global State of Digital Asset Regulation: Seizing Opportunities in a Changing Landscape” Panel Discussion#PZF2023 #PointZero Forum @sif_sfi @evandi pic.twitter.com/Jm0OBeifZh
— Bank of Italy (@bancaditalia) June 26, 2023
The rise of cryptocurrencies, combined with several “boom and bust cycles” in a largely unregulated environment, has caused “serious consumer harm,” the bank said.
The bank stated that since stablecoins are closely related to DeFi, regulators should give priority to stablecoin issuers in particular:
“Given the asset class’s prominent role in decentralized finance, strong, risk-based regulation of stablecoins, ensuring protection against ‘runs’ on their issuers, is necessary to reduce the vulnerability of the DeFi ecosystem.”
It added: “Policy interventions on stablecoins and DeFi must be well synchronized, as the proliferation of stablecoins (…) could spur a new wave of DeFi innovation and increase interconnectivity between traditional and decentralized finance. “
The Italian banking authority also noted that the stablecoin “has not proven to be stable at all” — citing the most high-profile crash of Terra algorithmic stablecoin TerraClassicUSD (USTC) in May 2022.
pass #DLT Solutions, especially those with weak organizational structures, can disrupt the financial system due to lack of controls, lack of specific rules as mitigation tools, and interdependence between regulated and unregulated entities. Fragmentation is…
— Bank of Italy (@bancaditalia) June 27, 2023
The industry also needs to acknowledge that most decentralized protocols are run by core stakeholders who can often “take an ownership interest” that debunks the “illusion of decentralization,” the bank said.
“Such projects should return to traditional, responsible business structures as a prerequisite for operating in the regulated financial sector,” the bank added.
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However, the bank emphasized that it is not necessary to bring all crypto assets or activities under financial services regulation:
“Not all crypto-activity and all forms of crypto-assets need to be covered or should be regulated by the financial sector, especially when their issuance, trading and holding do not serve the financial needs of customers through payment or investment functions.”
Non-financial use cases supported by blockchain include decentralized identity, real estate, supply chains, voting and carbon credits.
The Bank of Italy also called on countries to cooperate and create an international regulatory framework, as the technology works regardless of national borders.
Magazine: Unstable currencies: Decoupling, bank runs and other risks loom
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