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Decrypting financial stability risks in crypto-asset markets

Author

Listed:
  • Hermans, Lieven
  • Ianiro, Annalaura
  • Kochanska, Urszula
  • Törmälehto, Veli-Matti
  • van der Kraaij, Anton
  • Simón, Josep M. Vendrell

Abstract

The stellar growth, volatility and financial innovation currently seen in the crypto-asset ecosystem, as well as the rising involvement of institutional investors, show how important it is to gain a better understanding of the potential risks crypto-assets could pose to financial stability if trends continue on this trajectory. This special feature provides an update on crypto-asset market developments and a general overview of risks stemming from unbacked crypto-assets and decentralised finance, given the way in which they have evolved and their specific characteristics and risks. Systemic risk increases in line with the level of interconnectedness between crypto-assets and the traditional financial sector, the use of leverage and lending activity. It is important to close regulatory and data gaps in the crypto-assets ecosystem to mitigate such systemic risks. JEL Classification: G18, G19, G23, G28, G51

Suggested Citation

  • Hermans, Lieven & Ianiro, Annalaura & Kochanska, Urszula & Törmälehto, Veli-Matti & van der Kraaij, Anton & Simón, Josep M. Vendrell, 2022. "Decrypting financial stability risks in crypto-asset markets," Financial Stability Review, European Central Bank, vol. 1.
    • Handle: RePEc:ecb:fsrart:2022:0001:2
    Note: 2568016
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    File URL: https://www.ecb.europa.eu//pub/financial-stability/fsr/special/html/ecb.fsrart202205_02~1cc6b111b4.en.html
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    Citations

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    Cited by:

    1. Luca Mungo & Silvia Bartolucci & Laura Alessandretti, 2023. "Cryptocurrency co-investment network: token returns reflect investment patterns," Papers 2301.02027, arXiv.org, revised Jan 2023.

    More about this item

    Keywords

    crypto assets; crypto lending; financial stability risk; leverage;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth

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