Italy’s top banking authority has called for a “robust, risk-based” regulatory framework for stablecoins, which could help prevent a worst case scenario — a “run” on stablecoins.
The central bank’s recently released “Markets, Infrastructures and Payment Systems” report for June has called on regulators to apply the same financial conduct standards to stablecoin issuers in the industry.
#Bankitalia #26June Alessandra #Perrazzelli discussed about the evolving regulatory landscape for #DigitalAssets at @pointzeroforum Panel “State of Global Digital Asset Regulation: Navigating Opportunities in an Evolving Landscapeâ€#PZF2023 #PointZeroForum @sif_sfi @elevandi pic.twitter.com/Jm0OBeifZh
— Banca d’Italia (@bancaditalia) June 26, 2023
The bank said the rise of cryptocurrencies, coupled with several “boom and bust cycles” in a largely unregulated environment, has caused “significant consumer harm.”
Regulatory attention on stablecoin issuers in particular should be a priority because of its close connection to DeFi, the bank said:
The adoption of #DLT solutions, especially if featured by weak organizational structures, could undermine the financial system due to lack of controls, lack of specific rules as mitigation tools, interdependence among regulated and non-regulated entities. The fragmentation is…
— Banca d’Italia (@bancaditalia) June 27, 2023
“It is crucial that policy interventions on stablecoins and DeFi are well synchronized since the diffusion of stablecoins […] is likely to spur new waves of DeFi innovation and increase the interconnection between traditional and decentralized finance,” it added.
The Italian banking authority also noted that stablecoins “have not proved stable at all” — citing the most notable collapse of Terra’s algorithmic stablecoin TerraClassicUSD (USTC) in May 2022.
The bank said the industry also needs to debunk “the decentralization illusion” by acknowledging that most decentralized protocols are operated by core stakeholders who can often “extract ownership benefits.”
“Such projects should be brought back to traditional, accountable business structures as a pre-condition for operating in the regulated financial sector,” the bank added.
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The bank however stressed that it isn’t necessary to subject every crypto asset or activity to financial services regulation:
Among the non-financial use cases enabled by blockchain are decentralized identification, real estate, supply chain, voting and carbon credits.
Italy’s central bank has also called for countries to cooperate and establish an international regulatory framework because the technology operates irrespective of nation state borders.
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