BIS Highlights Financial Stability Risks in Cryptocurrency and DeFi

According to Odaily, the Bank for International Settlements (BIS) has released a paper examining the financial stability risks associated with cryptocurrencies and decentralized finance (DeFi). The report highlights that while cryptocurrencies are generally perceived to have minimal connections with traditional finance (TradFi), the issuance of Bitcoin ETFs, the expansion of stablecoins, and the tokenization of real-world assets (RWA) have grown the cryptocurrency market to a size that could trigger financial stability risks. The BIS report also notes that during market crises, smaller investors tend to increase their exposure to cryptocurrencies, whereas wealthier investors withdraw. This trend suggests that the cryptocurrency market may be facilitating a transfer of wealth from poorer to richer individuals. The report recommends that DeFi should adopt regulatory measures similar to those in TradFi, including compliance with 'know your customer' requirements, information disclosure, and adequate training and certification for market professionals.