Today the Financial Stability Board published a report on crypto-assets that warns of the potential risks to the global financial system. The concerns are linked to the rapid evolution of crypto, the scale, structural vulnerabilities and increasing connectedness with the traditional financial system. While it has concerns about all these issues, it’s particularly concerned about the impact on the current mainstream systems.
Risks were split into three areas, un-backed crypto-assets such as Bitcoin, stablecoins, and Decentralized Finance (DeFi) and crypto trading platforms. In each area, it considered the risks of financial sector exposure, wealth effects, and confidence effects.
For DeFi and crypto trading platforms, a major risk is the increasing amount of centralized activity on a small number of cryptocurrency exchange and lending platforms, which tend to operate in offshore jurisdictions. It’s the concentration, the mix of functionality combining lending and custody, and the lack of regulatory oversight and transparency which is triggering these concerns.
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