Sunday, September 25, 2022

Christine Lagarde Says DeFi Is A Threat To Financial Stability

Barely a month ago, the president of the European Central Bank (ECB), Christine Lagarde, called cryptocurrencies ‘worthless’. And now she has made further claims about cryptocurrencies and decentralized finance (DeFi) in general. According to Lagarde, DeFi poses real threats to financial stability. But, she also admitted that the threats may not be visible yet, at least, until the cryptocurrencies take up more major roles in the global economy.

ECB to regulate crypto lending and staking, says Christine Lagarde

Without a doubt, the recent crash of Celsius has brought a serious amount of scrutiny to crypto lending.

Recall that the crypto lender – Celsius, had announced on June 13 that it would be halting withdrawals on its platform. However, as of the time of writing, normalcy has still not yet returned.  However, the crypto lender continues to ask its customers to give it more time.

So for this reason, the ECB wants to put up more regulations that will effectively cover crypto lending and staking. This is what it hopes to achieve in its Markets in Crypto-Assets II (MiCA II) regulatory framework, a new version of MiCA.

Lagarde’s concerns appear genuine though. Especially after considering that the proposals contained in the original framework may not take effect until 2024. Whereas, the markets continue to grow at such an alarming rate. According to Largarde, MiCA II will pay detailed attention to consumers’ protection and transparency of valuation claims among other things.

The need for crypto legislation in the EU

The ECB has always maintained that crypto regulation in the European Union should be treated as a matter of urgency. And many of the central bank’s officials have on several occasions come out to issue crypto warnings.

Most recently, however, the ECB stated why crypto has to be urgently regulated. Citing the complex nature of the crypto markets and their continuous growth, the ECB insists that the sector has all the potential to threaten financial stability.

Notably, though, recent fluctuations in the crypto world are yet to show any real effects on the global financial system. However, the threat persists as more institutional investors are now getting involved.

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