European Commission Bank advocates for crypto regulations
The ECB admitted that the crypto space was fast-evolving, adding that if the ongoing trend in the market persisted, cryptocurrencies would pose a risk to financial stability. Therefore, the space needed to be regulated and supervised effectively.
The main areas the ECB focused on were the climate risk of cryptocurrencies, decentralized finance (DeFi), and stablecoins. The first main concern was about climate, with the report saying that there was a choice between incentivizing the crypto space and banning the fossil fuel version of the crypto space.
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The ECB’s main concern was proof-of-stake (PoS), and it was unlikely that public authorities would implement a hands-off approach. The policies taken by the authorities in this space include imposing carbon taxes on cryptocurrency transactions and a ban on mining.
The next attack was on decentralized finance (DeFi), with the ECB saying that most protocols were centralized. The central bank used the example of Uniswap, saying that the platform was largely controlled by whale addresses and early investors. 1% of all the token holder addresses held around 97% of the entire token supply.
ECB turns attention towards stablecoins
The ECB also turned its regulatory attention towards stablecoins. The institution has been trying to veto stablecoins since the beginning of 2021 and even provided an example of the Terra network and how it collapsed.
The ECB noted that some recent developments in the crypto space showed that stablecoins were not as stable as they were claimed to be. The collapse of TerraUSD and the temporary depegging of other stablecoins showed that they were just as risky.
The report further said that stablecoins needed to attract regulatory attention. It also added that the EU had proposed MiCA laws that needed to be implemented urgently. The central bank also failed to compare the cryptocurrency market’s volatility and the devaluation and instability of fiat currencies because of the changes in economic policies.
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