BoE on Crypto Assets and Decentralized Finance

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Bank of England on stablecoins and CBDC: cannot hold back evolution of money“–Paul Ebeling

The BoE report highlights the risks associated with what it called ‘crypto asset technology,’ which include financial risks arising from direct exposures or spillovers between markets, operational risks arising from the use of new technology and regulatory and stability challenges as activity migrates or new forms of entities and business models emerge.

Cryptoassets and DeFi are considered risky by many. Some regulators even push this point to some extreme, but the Big Qs here are how risky is DeFi? How much riskier is it than other parts of the financial system?

The report answers this question, and here is what it says about the risks posed by crypto assets compared to other parts of the financial system, as follows:

“Many of the risks posed by crypto assets and DeFi are similar to those managed by the existing regulatory framework in other parts of the financial system.”

So these risks do not make crypto assets undesirable and with proper regulation, which in my opinion is meant to weed out malicious actors and make DeFi run as smoothly as possible, these risks can be managed to bring out the best of this new technology.

Have a prosperous week, Keep the Faith!