Stablecoin and Defi regulation necessary, according the FSB

What is a Stablecoin

The Financial Stability Board (FSB), a regulator backed by the Bank for International Settlements, has called for the regulation of decentralised finance (DeFi).

The FSB released a report on the financial stability risks of the DeFi space and is seeking international regulations to mitigate the vulnerabilities as much as possible. According to the report, DeFi might offer unique services, but it “does not differ substantially” from traditional finance in the core way it operates. The FSB noted that in trying to copy some of the key functions of traditional finance, DeFi increases potential risks into the financial industry because of the unique technology that underpins the decentralised industry. The FSB continued to argue that the lack of regulation doesn’t help this.

To alleviate the risks and increasing vulnerability of DeFi, the FSB is not looking to halt the crypto ecosystem, but rather look to regulate the industry with standard protocols. The regulator will be working with international standard-setting authorities to set up and analyse DeFi regulations in countries and regions across the world.

The FSB also stressed that asset-backed stablecoins such as Tether ($USDT) and algorithmic stablecoins like Dai ($DAI) are crucial in the DeFi industry. They’re also an easy entrance point for new DeFi users and require regulations as a result:

“The FSB may consider whether subjecting these crypto-asset types and entities to additional prudential and investor protection requirements, or stepping up the enforcement of existing requirements, could reduce the risks inherent in closer interconnections. With respect to liquidity and maturity mismatch issues, stablecoins are a crucial area of focus.

This news follows a massive increase in financial authority intervention in the crypto space. With probes and investigation coming from global regulators into leading exchanges like Paxos (regarding the issuance of Binance USD ($BUSD)) and Kraken, regulators are looking to create standard investor protection and legislation regarding stablecoins and DeFi cryptocurrencies.

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