ECB Calls for Urgent Regulation of Stablecoins and Defi, Won’t Rule Out Bitcoin Mining Ban – Regulation Bitcoin News

A new report by the European Central Bank (ECB), presented as a “deep dive into crypto financial risks,” calls for “appropriate” regulation and oversight of stablecoins and decentralized finance (defi). It also addresses the hot topic of Bitcoin’s carbon footprint in Europe, suggesting a ban on proof-of-work mining is probable.

Stablecoin Growth, Defi Warrants Regulation, Supervision, ECB Statements

In the most recent edition of Macroprudential Bulletin, the European Central Bank (ECB), the European Central Bank (ECB), focuses attention on the crypto-related risks to financial markets, particularly those related with stablecoins, defi platform, and the climate-related threat that is attributed to the energy-intensive method of mining crypto. The report was published July 31st. highlightedPatrick Hansen (Crypto Venture Advisor at Presight Capital) will be speaking this week.

These papers examine the policy implications these crypto markets have on their respective segments. The authors argue that global stablecoin growth and increased use require the immediate application of regulatory, supervisory and oversight frameworks such as the MiCA legislation before digital currencies are interconnected with traditional financial systems.

Recognizing that stablecoins are crucial for crypto ecosystem, the experts from the ECB point out their crucial function in one of three bulletin articles. If unbacked crypto assets present a risk for financial stability, they may have contagion effect on the financial system. Reminding of May’s collapse of the terrausd (UST) algorithmic stablecoin, they comment:

Recent developments have shown that stablecoins can be unstable, such as the crash in terrausd or the temporary de-pegging tether.

Initially serving mainly as a “relatively safe ‘parking space,’” the use cases for stablecoins have multiplied in recent years, the eurozone’s monetary authority notes, even more so with the rise of defi applications, which represent another rapidly expanding segment of the crypto market, especially over the past year.

The ECB acknowledges that defi platform use technology-enabled innovations and can differ in aspects like how assets and trust are generated, managed, and governed. However, they claim not to create financial products new, but simply mimic the offerings of traditional financial institutions. At the same time, “defi is in many ways subject to the same vulnerabilities as traditional finance,” the central bank says, elaborating:

Although Defi platforms or protocols claim they have decentralized governance structures, in fact governance is usually concentrated.

The ECB is convinced that effective regulation and supervision of the defi spaces are necessary, despite their decentralized and anonyme natures that can make it more challenging for policymakers and authorities. European Central Bank advocates for coordination at the international level, and the use of shared standards and methods to find and close regulatory gaps.

A ban on proof-of-work mining is considered probable

ECB’s Macroprudential Bulletin comes as the European Union progresses towards adopting and implementing the comprehensive MiCA regulatory package. Recent agreements were reached by key EU institutions regarding the legislation. Unpopular proposals to ban the provision services of cryptocurrencies that use the powerful proof-of work (PoW), were dropped from the draft.

Some members of the community and crypto industry warned against imposing such a restriction on Bitcoin. But the ECB article asking the question “Is climate risk priced into crypto assets?” argues that authorities can incentivize the proof-of-stake (PoS) consensus mechanisms, described as “the crypto version of the electric vehicle,” and restrict or ban the PoW mechanisms, referred to as “the crypto version of the fossil fuel car.”

“So, while a hands-off approach by public authorities is possible, it is highly unlikely, and policy action by authorities (e.g. disclosure requirements, carbon tax on crypto transactions or holdings, or outright bans on mining) is probable,” the authors think. In their opinion, it’s also unlikely that the EU will restrict or ban fossil fuel cars by 2035, but not take action against crypto assets with their carbon emissions which they say are enough to negate most euro area countries’ greenhouse gas emission savings.

Is it possible that the EU will establish strict rules for cryptocurrency assets, and even ban mining of bitcoin? Please share your thoughts in the comment section.

Lubomir Tatsev

Lubomir Tassev is a journalist from tech-savvy Eastern Europe who likes Hitchens’s quote: “Being a writer is what I am, rather than what I do.” Besides crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.