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A deep dive into crypto financial risks: stablecoins, DeFi and climate transition risk

Author

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  • Born, Alexandra
  • Simón, Josep M. Vendrell

Abstract

Financial stability risks stemming from crypto-assets are rising, and the crypto-asset ecosystem has become more complex and interconnected. This issue of the Macroprudential Bulletin takes a deep dive into the risks and policy implications of several segments of the crypto-asset market. One central element is stablecoins, whose growth, innovation and increasing global use cases call for the urgent implementation of appropriate regulatory, supervisory and oversight frameworks before significant further interconnectedness with the traditional financial system occurs. Another fast-growing segment within the crypto ecosystem is decentralised finance (DeFi), whose novel way of providing financial services without relying on centralised intermediaries entails specific financial stability risks and regulatory challenges. Lastly, this issue highlights the climate transition risk for the financial sector stemming from the significant carbon footprint of certain crypto-assets like bitcoin and proposes potential measures that can be taken by authorities.. JEL Classification: E42, G18, G23, G28

Suggested Citation

  • Born, Alexandra & Simón, Josep M. Vendrell, 2022. "A deep dive into crypto financial risks: stablecoins, DeFi and climate transition risk," Macroprudential Bulletin, European Central Bank.
    • Handle: RePEc:ecb:ecbmbu:2022::1
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    File URL: https://www.ecb.europa.eu//pub/financial-stability/macroprudential-bulletin/html/ecb.mpbu202207_1~750842714e.en.html
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    More about this item

    Keywords

    climate transition risk; crypto-assets; decentralised finance; financial stability risk; regulation; stablecoins;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • 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

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