ECB head calls for separate framework to regulate crypto lending

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A week after the major Amer­i­can cryp­to lend­ing plat­form Cel­sius had to freeze the with­draw­al option for its users, Euro­pean Cen­tral Bank (ECB) pres­i­dent Chris­tine Lagarde voiced her con­vic­tion on the neces­si­ty of tighter scruti­ny over this part of the cryp­to market. 

Dur­ing the tes­ti­mo­ny before the Euro­pean Par­lia­ment on Mon­day, June 20, Chris­tine Lagarde expressed her thoughts not only about the loom­ing infla­tion in Europe and around the globe but also about the increas­ing activ­i­ties of cryp­to-assets stak­ing and lend­ing. In Lagarde’s opin­ion, this trend demands addi­tion­al reg­u­la­to­ry efforts from the Euro­pean Union (EU). Refer­ring to the major reg­u­la­to­ry pack­age, mak­ing its way through the leg­isla­tive rou­tine, Mar­kets in Cryp­to-Assets (MiCa), she even coined the term “MiCa II”:

“MiCA II should reg­u­late the activ­i­ties of cryp­to-asset stak­ing and lend­ing, which are def­i­nite­ly increasing.”

Lagarde warned about the risks, posed by the lack of reg­u­la­tion in this seg­ment of the market:

“Inno­va­tions in these unex­plored and unchart­ed ter­ri­to­ries put con­sumers at risk, where the lack of reg­u­la­tion is often cov­er­ing fraud, com­plete­ly ille­git­i­mate claims about val­u­a­tion, and very often spec­u­la­tion as well as crim­i­nal dealings.”

The offi­cial made a sep­a­rate men­tion of decen­tral­ized finance (DeFi), which, from her point of view, also pos­es a “real risk to finan­cial sta­bil­i­ty” and thus should be cov­ered by the sep­a­rate reg­u­la­to­ry framework. 

A pro­ce­dure, which caught the ECB head’s atten­tion, stak­ing is avail­able on Proof-of-Stake (PoS) pro­to­col and allows mul­ti­ple cryp­to token hold­ers to pool in their tokens, there­by grant­i­ng the stak­ing pool oper­a­tor a val­ida­tor sta­tus and reward­ing all stake­hold­ers with tokens for their com­pu­ta­tion­al resources’ contributions. 

Relat­ed: The pros and cons of stak­ing cryptocurrency

Lagarde is famous for her overt anti-cryp­to posi­tion and numer­ous claims that cryp­tocur­ren­cies are “worth noth­ing” and “based on noth­ing.” Mean­while, the Euro­pean Com­mis­sion announced that it’s prepar­ing a dig­i­tal euro pro­pos­al for 2023. The ECB is expect­ed to have a pro­to­type by the end of 2023, and if every­thing goes well, it may be issued in 2025.

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