September 11, 2023
By Sharan Kaur Phillora
The International Monetary Fund (IMF) and the Financial Stability Board (FSB) have unveiled a joint policy document outlining recommendations for crypto assets. This initiative was a direct response to the Indian G20 presidency’s request. The collaborative effort aims to merge the established standards and gather collective insights, aiming to guide multiple jurisdictions in mitigating risks tied to crypto asset activities.
Here’s what we know:
The policy document highlights the regulation of activities surrounding stablecoins and decentralized finance (DeFi). Moreover, it delineates how the regulatory blueprints and policies, as crafted by the IMF and the FSB, can synergize and align. It’s pivotal to note that this document doesn’t set forth any new policy frameworks or expectations for pertinent authorities.
Stablecoins, pegged with the hope of maintaining a consistent value, have the potential to unpredictably become volatile, posing significant threats to financial stability, as highlighted in the paper.
The discourse on DeFi protocols emphasized that despite their operational differences from traditional finance platforms, their functional resemblance to the mainstream financial world remains significant. This underlines the notion that while DeFi aims to emulate conventional financial functions, it might also amplify the inherent risks and vulnerabilities like liquidity imbalances, operational fragilities, and excessive leverage.
A crucial takeaway from the paper was the skepticism surrounding the absolute decentralization of DeFi. It reads, “Claims of decentralization often do not hold up to scrutiny. DeFi may currently display unclear, ambiguous, or unproven governance frameworks that could leave users vulnerable.”
In addition to its insights on DeFi and stablecoins, the paper also re-emphasized the IMF’s perspective on crypto regulation. Earlier, on June 22, the IMF asserted that an outright crypto ban may be ineffectual in the foreseeable future. Instead, the focus should be on comprehending the driving factors behind crypto demand, particularly the growing consumer appetite for digital payment solutions.
About the author
Sharan Kaur Phillora’s thirst for knowledge has led her to study many different subjects, including NFTs and Blockchain technology – two emerging technologies that will change how we interact with each other in the future. When she isn’t exploring a new idea or concept, she enjoys reading literary masterpieces.