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A new report from the European Central Bank (ECB), billed as a “deep dive into crypto-financial risks”, calls for “appropriate” regulation and supervision of stablecoins and decentralized finance (defi). He also touches on the hot topic of Bitcoin’s carbon footprint in Europe, suggesting that a ban on proof-of-work mining is likely.

Growth of Stablecoins, Regulation and Supervision of Defi Warrants, According to the ECB

The financial risks associated with crypto, those associated with stablecoins and defi platforms in particular, as well as the threat to climate transition objectives attributed to energy-intensive methods of cryptocurrency mining, are the focus of the latest edition of the Macroprudential Bulletin Published by the European Central Bank (ECB). The key moments of the report published in July were Underline this week by Patrick Hansen, crypto-venture advisor at Presight Capital.

By exploring the policy implications of these segments of the crypto market, the authors of the article insist that the growth and increasing use of stablecoins around the world requires the immediate implementation of regulatory frameworks, monitoring and monitoring necessary, such as the Mica legislation, before the interconnection between these digital currencies and the traditional financial system deepens further.

Acknowledging the important role of stablecoins for the crypto ecosystem in one of the newsletter’s three articles, ECB experts point out that their critical function could have contagion effects for the financial system, if unbacked crypto assets present a risk to financial stability in the future. May Reminder collapse of the algorithmic stablecoin terrausd (UST), they comment:

Recent developments show that stablecoins are anything but stable, as evidenced by the crash of terrausd and the temporary unpecking of tether.

Initially serving primarily as a relatively secure “parking spot,” use cases for stablecoins have mushroomed in recent years, notes the eurozone monetary authority, all the more so with the rise of defi apps, which represent another rapidly expanding segment of the crypto market, especially over the past year.

While acknowledging that the defi platforms use technological innovation and differ in certain aspects such as the way assets are held, trust is generated and the systems governed, the ECB says they do not create new products but rather mimic those offered by traditional financial providers. At the same time, “defi is in many ways subject to the same vulnerabilities as traditional finance,” the central bank says, adding:

Defi protocols or platforms claim to have a decentralized governance structure, although in reality the governance is often concentrated.

The ECB believes that efforts are needed to effectively regulate and supervise the challenge space, despite the challenges arising from its decentralized and anonymous nature, which make it more difficult for policymakers and respective authorities. The European Central Bank urges an internationally coordinated approach and common standards to identify and close regulatory gaps.

Proof-of-work mining ban deemed likely

The ECB’s Macroprudential Bulletin comes as the European Union moves towards adopting and implementing the comprehensive MiCA regulatory package. Key EU institutions have recently reached a OK on the legislation. A controversial proposal to prohibit the provision of services for cryptocurrencies using energy-intensive proof-of-work (PoW) mining has been removed from the draft.

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

Members of the crypto industry and community had warned that such a move would amount to a Bitcoin ban. But the ECB article poses the question “Is climate risk priced into crypto-assets?” argues that authorities can encourage proof-of-stake (PoS) consensus mechanisms, described as “the crypto version of the electric vehicle,” and restrict or prohibit PoW mechanisms, called “the crypto version of the fossil-fuel car.” ” “

“So while a hands-off approach by public authorities is possible, it is highly unlikely, and political action by authorities (e.g., disclosure requirements, a carbon tax on crypto transactions or holdings, or bans outright mining) is likely,” the authors said. think. In their opinion, the EU is also unlikely to 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 cancel the greenhouse gas emissions savings of most euro area countries.

Keywords in this story

Articles, Bank, newsletter, Carbon Dioxide Emission, central bank, Crypto, crypto-mining, Cryptocurrencies, Cryptocurrency, Challenge, ECB, Energy consumption, EU, European Central Bank, European Union, Eurozone, Mica, pow, proof of work, Regulation, Regulations, report, Stable Coins

Do you think the EU will introduce strict regulations for crypto assets and ban bitcoin mining? Share your expectations in the comments section below.

Lubomir Tassev

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




Image credits: Shutterstock, Pixabay, Wiki Commons

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