Financial Stability Board (FSB), G20’s Chief Financial Officer, Makes a Statement on Cryptocurrencies!

A new report by the G20 Financial Stability Board (FSB) targets the decentralized finance (DeFi) world cryptocurrency He adds that his field is “not significantly different from conventional finance.”

The FSB is an international organization that represents all major G20 economies and publishes advice and recommendations on the world’s financial system.

FSB Publishes A Detailed Report On The Cryptocurrency Space

“Attempting to copy some functions of the traditional financial system, DeFi can take over and increase the vulnerabilities of this system,” the report says.

In addition to addressing similarities with traditional finance, the wide-ranging report criticizes the “true degree of decentralization” of this field, the danger of crypto bridges, and the flaws found in smart contracts that underpin DeFi’s applications.

However, the FSB argued that the “most worrying” vulnerability remains the “risk of sudden withdrawals” in lending platforms and stablecoins.

“The automatic liquidation of collateral in smart contracts, which can be enforced unevenly among participants depending on the protocol design, is a major reason why leverage dynamics in DeFi can be particularly devastating,” the report says.

In contrast, traditional finance and its network of legal advisers avoid such disruptions through “regular liquidation.” The FSB also said that measuring the amount of leverage in DeFi is “hard to measure”, making it particularly difficult to identify what the organization calls “collateral chains.”

The FSB’s list of vulnerabilities and risks worries the organization as they affect “traditional finance and the real economy.”

Therefore, the report recommends incorporating DeFi into the FSB’s supervisory system and determining whether existing regulatory regimes should be “developed to accept DeFi-specific risks.”

*Not investment advice.