Weekly Update — DeFi Regulation 12/8–12/15/2021
Community News
This past week, we sponsored and spoke at CoinAgenda in Puerto Rico. The CoinAgenda Global conference covers international blockchain investing trends, with world-class speakers from around the world and an emphasis on blockchain economic development, friendly jurisdictions, enterprise applications, and changes to funding vehicles and exchanges.
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DeFi Regulation News
IMF outlines cryptocurrency risks, calls for coordinated global regulation
The International Monetary Fund (IMF) has called for “comprehensive, consistent and coordinated” global regulations for cryptocurrency. The Fund listed three essential cores to global crypto regulation. Regulators need to coordinate to address the various risks arising from different and changing uses, it said. The advent of crypto can accelerate “cryptoization” — a situation when these assets replace domestic currency and circumvent exchange restrictions and capital account management measures. This, the IMF said, underscores the need for comprehensive international standards.
Bank of England calls for global tightening of crypto regulation
The Bank of England said regulatory and legal frameworks for crypto-assets would have to be ramped up to combat the fast-moving market. The bank welcomed the UK Treasury’s proposal for a regulatory regime for governing the use of stablecoins as a means of payment. This included recommendations for bringing systemic stablecoins into the bank’s regulatory remit. This is the latest in a series of comments the bank has made on potential crypto regulations. Deputy Governor for Financial Stability Jon Cunliffe suggested in November that crypto-assays could potentially destabilize the UK’s financial system.
The pressing questions about crypto regulation that India needs to answer
Cryptocurrency and Regulation of Official Digital Currency Bill 2021 set to be introduced in Parliament. GoI officials have stated that only ‘private cryptocurrency’ would be banned. This comes in the wake of several unsuccessful attempts of regulating cryptocurrency, such as the unpassed draft Bill in 2019, and Reserve Bank of India (RBI) circular in 2018 that was struck down by the Supreme Court in 2020. The Bill is eagerly awaited so as to understand the GoI’s position on blockchain products. They differ from cryptocurrencies by being intangible assets backed by blockchain technology.
LIVE BLOG: House Meets on Crypto Regulation
The U.S. House Financial Services Committee hosted a wide-ranging hearing on digital assets and stablecoins today. The hearing ended after four hours and 49 minutes, clocking in as one of the longer congressional hearings on crypto. Nearly 40 lawmakers asked questions ranging from specifics about stablecoin backing or certain details to broader questions about use cases in the sector. Stablecoin CEO Jeremy Allaire says stablecoins are faster than the traditional banking system, giving it its edge: “I think it’s essential.”
Global crypto regulation should be comprehensive and coordinated
Global crypto regulation should be comprehensive and coordinated, says Tobias Adrian, Dong He, and Aditya Narain. They say the nearly $2.5 trillion market capitalisation indicates significant economic value of the blockchain, but it might also reflect froth in an environment of stretched valuations. The Financial Stability Board, in its coordinating role, should develop a global framework comprising standards for regulation of crypto assets. We believe this should, for example, have the following three elements: Licensing and authorisation criteria should be clearly articulated, and coordination mechanisms among them well defined.
Australia Set for Massive Shakeup to Crypto Regulations: Treasurer
Australia will announce its biggest reform in the country’s payment systems in 25 years, including crypto, on Wednesday. Firms that buy and sell cryptocurrencies will have to be licensed to bring safety and security to users, the treasurer said. The government will also work out a licensing plan for crypto exchanges next year, the Australian Financial Review reported. More than five million accounts for “buy now, pay later” services exist in Australia, Frydenberg said in an interview with 7NEWS Australia.
Russian regulators aim to increase legislation in the crypto sector
Alexander Bastrykin, Chairman of the Investigative Committee of Russia said that the decentralized nature of the issuance of digital currency does not allow for full state control in the area. Few cases have been sent in the court in matters related to crypto, he added. The Prosecutor General’s Office wants to introduce cryptocurrency in the legislation. Reports suggest that the Bank of Russia has been considering the possibility to issue its central bank digital currency (CBDC), a digital ruble, for quite some time. Russia is planning to make it easier for foreign nationals to hold the e-ruble.
Ukraine’s new crypto law could make it a trading hub. Some would rather it stayed in the shadows
Ukrainian parliament passed a law in September that will legalise and regulate the sector and restrict cryptocurrencies which will now be seen as non-monetary assets. The law is expected to pass again before the end of the year after being sent back to parliament for amends by President Volodymyr Zelenskyy. Law doesn’t allow for the use of crypto in exchange for goods and services, but it will be the first step towards a crypto-inclusive future, says Deputy Minister for Digital Transformation Oleksandr Bornyakov.
Robinhood’s chief legal officer says ‘it’s a stretch’ to believe crypto legislation is coming anytime soon
Daniel Gallagher: “It’s a stretch to believe that there will be legislation” on crypto anytime soon. He said the congressional hearing Wednesday would be more informative for the SEC. The cryptocurrency market has boomed this year, hitting a $3 trillion market capitalization for the first time. Bitcoin hit a record high of about $69,000 last month but has since slid to $50,000 on Wednesday. The market is about the size of the entire UK economy, Insider reported previously.
‘Decentralization illusion’: Central bank group urges regulation of DeFi crypto platforms
The central bank of central banks is worried about “decentralized finance” The Bank for International Settlements said it’s concerned about the illusion of decentralization. DeFi is a rapidly-growing part of the cryptocurrency market that promises to deliver traditional financial products like loans and savings accounts without involvement from regulated middlemen such as banks. The BIS said DeFi must be “properly regulated” in order to safeguard investors and boost trust in the market. A co-founder of decentralized crypto exchange Swarm Markets said numerous institutions in the space are already working to address the issues.
The decentralization promised by DeFi is an ‘illusion’ and a threat to global financial stability, BIS warns
Decentralized finance “appears to be operating largely within its own ecosystem,” BIS says. DeFi market for peer-to-peer blockchain-based financial transactions surged beyond $100 billion in valuation this year. Stablecoins — “the grease between DeFi wheels” — are subject to classic runs and the backing of liquid claims with less liquid reserve assets can spark downward price spirals akin to those stemming from redemptions in the investment fund industry, said BIS. The institution said there’s the “illusion” that DeFi is decentralized.
China DeFi sector booms despite regulators’ crypto crackdown
Global bitcoin mining has already recovered from the ban imposed by Chinese authorities in May. The hashrate, a measure of total computing power used to mine bitcoin, is up 113% since the Chinese authorities imposed their ban. China has also cracked down on public decentralised chains because of their use of initial coin offerings. In January the Shanghai government made an investment in blockchain firm Conflux in a move some have interpreted as an attempt by China to build its own version of DeFi and limit the amount of capital leaving the country.
