Bank of Italy upholds need for regulations around stablecoin-based investments
Italian central has suggested the need for “robust, risk-based” stablecoin regulations. The step is expected to help prevent a “run” on stablecoins, as stated by Cointelegraph.
According to Cointelegraph, the central bank unveiled its “Markets, Infrastructures and Payment Systems” report for June. From what it’s understood, the report has asked regulators to draft financial conduct guidelines for the industry’s stablecoin issuers. Reportedly, the bank highlighted that increase in cryptocurrencies, along with “boom and bust cycles” in an unregulated market, has resulted in “significant consumer harm.”
“A robust, risk-based regulation of stablecoins ensuring the prevention of ‘runs’ on their issuers is a necessary condition to reduce the fragility of the DeFi ecosystem, given the prominent role of this asset class in decentralised finance. It is crucial that policy interventions on stablecoins and DeFi are well synchronised since the diffusion of stablecoins […] is likely to spur new waves of DeFi innovation and increase the interconnection between traditional and decentralised finance,” the bank stated.
Based on Cointelegraph’s data, the Italian banking authority has emphasised that stablecoins “have not proved stable at all,” by giving example of debacle around TerraClassicUSD (USTC), Terra’s algorithmic stablecoin, in May, 2022. Reportedly, the bank upheld the requirement of solving “the decentralisation illusion,” through the point that decentralised protocols are managed by stakeholders who can “extract ownership benefits.”
“Not all crypto activities and not all forms of crypto-assets need to be covered or should be covered by financial sector regulation, in particular where their issuance, trading and holding do not serve customers’ financial needs through a payment or investment function,” the bank concluded.
(With insights from Cointelegraph)