Stablecoin and Defi regulation necessary, according the FSB

Last Updated on 49 mins by John Piper

The Financial Stability Board (FSB), a regulator supported by the Bank for International Settlements has called for regulation of decentralised financial (DeFi)

The FSB has released a report about the financial stability risks in the DeFi sector and is looking for international regulations to reduce these vulnerabilities. The report states that DeFi may offer unique services but does not significantly differ from traditional finance in its core operations. DeFi’s unique technology, which underpins the decentralized industry, poses a risk to the financial sector by trying to replicate some of its key functions. The FSB argued that regulation is not necessary to prevent this.

The FSB will not seek to stop the cryptocurrency ecosystem from growing in vulnerability and risks, but instead regulate it with standard protocols. To establish and analyze DeFi regulations in countries around the globe, the regulator will work with international standard-setting bodies.

The FSB stressed the importance of asset-backed stablecoins, such as Tether ($USDT), and algorithmic stablecoins, like Dai ($DAI), in the DeFi market. They are also an easy entry point for DeFi users, and therefore require regulations.

The FSB might consider whether these crypto-asset types or entities should be subject to additional prudential, investor protection, and/or stepping up enforcement of existing requirements. This could help reduce the risk inherent in close interconnections. Stablecoins are an important area of concern in terms of liquidity and maturity mismatch issues.

This is the latest in a series of financial authorities intervening in the crypto market. Global regulators have launched probes and investigations into major exchanges such as Paxos (regarding issuance of Binance USD ($BUSD), and Kraken. They are now looking to establish standard investor protection and legislation concerning stablecoins, DeFi cryptocurrencies and other DeFi coins.

Coin Insider’s first article was Stablecoin and Defi Regulation Required, According to the FSB

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