A representative of the leadership of the US Federal Reserve said that the situation with a wave of defaults of crypto companies requires more careful supervision of the crypto industry.
The vice chair of the regulatory agency, Lael Brainard, during a speech at the Bank of England conference in London, called on politicians to tighten regulatory control over the crypto industry. Brainard highlighted the risk of the crypto market crash spreading to the mainstream financial ecosystem due to the lack of targeted regulation of banking institutions and stablecoin issuers.
The official pointed to the risks of the cryptocurrency market, which, in her opinion, is similar to traditional markets, although it works differently. Such volatility has been demonstrated in crypto platforms that have fallen victim to risks including “raids, selloffs, deleveraging, interconnection and contagion.” This can be seen in the example of companies that recently introduced a withdrawal freeze and even filed for bankruptcy in the face of a market downturn.
“Major crypto players who have used leverage to boost profits are struggling to monetize their holdings, skipping margin calls and facing possible insolvency,” says the Fed vice chairman.
Brainard noted that platforms that offer hybrid services as decentralized and centralized at the same time should not be considered as exceptions. She called DeFi protocols “presenting new challenges” due to the lack of identity verification and more. New technologies can be intermediaries in financial crimes, the official recalled.
The growing involvement of banks in the trading of cryptocurrencies and stablecoins, from holding and issuing to facilitating customers, could cause financial instability, the Fed vice chief warns. A collapse in the crypto space could affect banks that are closely tied to the rest of the traditional finance market.
Brainard acknowledged that while the relationship between cryptocurrencies and the mainstream financial system has not reached a level that could pose systemic risk, regulators have an obligation to look at banking institutions and stablecoin issuers. Stablecoins, as assets pegged to fiat currency, are “highly vulnerable to raid,” meaning they should be subject to controls like any private money.
Recently, Custodia Bank CEO Caitlin Long said that regulators should have regulated the crypto industry long ago and shut down capital-borrowing companies.
Source: Bits
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