The Bank for International Settlements (BIS) has warned of the dangers of rapid growth of cryptocurrencies and decentralized finance (DeFi) because of their potential risks to financial stability and economic inequality.
In a report released on April 15, the BIS pointed out that crypto markets have reached a scale that regulators can no longer ignore.
The report highlights stablecoins as a major issue, stating they have “become the means through which participants transfer value within crypto.”
The BIS argues that tighter regulations are necessary to ensure stablecoins remain reliable, especially in times of financial turbulence.
To mitigate risks, the BIS proposes new stability measures and reserve asset requirements, ensuring stablecoins can be redeemed for U.S. dollars even during “stressed market conditions.” This call for regulation aligns with ongoing legislative efforts in the U.S.
U.S. Pushes for Stricter Oversight
On April 2, the U.S. House Financial Services Committee passed the STABLE Act with a 32–17 vote, aiming to enhance transparency and consumer protections for dollar-backed stablecoins.
The bill seeks to establish a regulatory framework that ensures accountability in stablecoin operations.
Meanwhile, the Senate Banking Committee approved the GENIUS Act on March 13 by a vote of 18–6. This legislation focuses on collateralization requirements and mandates full compliance with anti-money laundering laws for all stablecoin issuers.
Crypto’s Impact on Wealth Distribution
Beyond financial risks, the BIS report highlights concerns about economic inequality.
It cites the 2022 collapse of FTX, noting a troubling trend where “large bitcoin holders (‘whales’) were selling as ordinary retail investors (‘krill’) were buying.” This suggests that the crypto market, often seen as a path to financial inclusion, could actually deepen wealth disparities.
The BIS acknowledges similarities between traditional and decentralized finance but warns that DeFi’s unique features—such as “smart contracts and composability”—present new regulatory challenges. It asked policymakers to take proactive steps to ensure stability while fostering innovation.
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