BIS Proposes Solutions to Mitigate Risks in Crypto Industry

The Bank for International Settlements (BIS) has suggested ways to address the risks of the crypto industry, including recent high-profile implosions like the FTX scandal. Its latest bulletin suggests three possible lines of action to mitigate the risks associated with cryptocurrency before it could potentially pose a threat to global financial stability.

One of the main issues that the BIS addresses is the decentralization of crypto. The authors note that while the bankruptcies of projects like LUNA, FTX, and others have triggered increased calls for decentralization from blockchain technology proponents, the web3 space may never achieve such a feat. “The vision of crypto proponents is to do away with financial intermediaries, yet to function and achieve a meaningful scale, crypto markets rely heavily on centralized entities for several reasons,” the BIS states.

The BIS also argues that the increasing roles of centralized exchanges and stablecoins in the industry make true decentralization almost impossible. Most DeFi market participants must first purchase the tokens of these projects with fiat money or stablecoins through centralized exchanges.

To tackle crypto risks, the BIS has outlined three key approaches that authorities could follow, including an outright ban, creating policies that isolate crypto from TradFi, and implementing TradFi-type regulations to regulate the crypto space.

See Also

Blockchain and DLT could improve products, services, and security: US Credit Union Regulator

The agency has also encouraged central banks to focus their efforts on innovation and create payment solutions, such as central bank digital currencies (CBDC), that will offer the masses all the benefits of crypto, such as cost-efficiency, speed, and financial inclusion, without their risks.