The BIS issued warnings on the DeFi-based altcoin market on Monday. In us, cryptocoin.com We have compiled the important issues of the report in detail. Here are the two crypto sectors under scrutiny…
“Altcoin market needs regulatory framework”
The BIS said on Monday there is a need for global “systemic regulation” to oversee banking activities that take place outside of traditional financial institutions such as DeFi. The DeFi market for P2P Blockchain-based financial transactions has exceeded $100 billion in valuation this year. It most recently carried a market cap of $143 billion in the broader cryptocurrency market of $2.4 trillion. Stablecoins are also a popular tool to facilitate DeFi projects, such as crypto lending and lending platforms. In a quarterly review published Monday on developments in the banking and financial markets, the BIS shares:
DeFi supporters highlight potential efficiency gains such as reducing high costs and slow speeds in traditional financial systems. For now, these achievements of the institution known as the central bank of central banks are hard to pin down: DeFi largely operates within its own ecosystem and has little in the way of providing financial intermediary services to the real economy.
BIS: DeFi, a decentralized ‘illusion’
In the report, the institution also included the term “illusion” for DeFi projects. However, he also added:
DeFi needs a centralized management to make strategic and operational decisions. Also, some features in DeFi, especially the consensus mechanism, support a concentration of power.
DeFi has the potential to complement traditional financial activities. But for now, the BIS argued that it “has little real economic use and mostly supports speculation and arbitrage between multiple cryptocurrencies.” The risks in the crypto ecosystem have so far been in the form of frequent and massive price drops. “It is still unclear whether such vulnerabilities will be confined to this ecosystem or pervasive to the traditional one,” the BIS said. However, the institution said that “the potential for spillover should not be underestimated, especially since stablecoin regulations themselves can create significant links.”
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