Fed calls the growth of the DeFi market a threat to financial stability

The main risk lies in the lack of proper regulation of the industry, according to analysts of the regulator

05.09.2022 - 08:05

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What’s new? The growth of the capitalization of the decentralized finance (DeFi) market could potentially pose threats and long-term risks to financial stability. That is the conclusion reached by analysts at the US Federal Reserve System (Fed) in a study on the transformative potential and risks associated with the development of the DeFi sector.

The full version of the study

What other data has been released? Researchers believe that the main threats are related to the lack of clear rules for regulating the industry. The Fed stressed that the authorities do not currently have the necessary tools to enforce the laws in the DeFi market.

Analysts also said that stricter oversight needs to be implemented for crypto companies handling customer funds. This should include comprehensive disclosure and capital and liquidity requirements. In addition, the researchers saw significant risks to economic stability if the digital asset market becomes more interconnected with traditional markets.

Earlier, experts at Bank of England Owen Lock and Teresa Cascino said that the widespread use of crypto assets in the metaverse could pose a systemic risk to financial stability and would require “strong consumer protection.” According to them, the threat is that large volumes of “real economic transactions” in cryptocurrencies will go through decentralized platforms.

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