• The Bank for International Settlements has proposed possible solutions to address the risks of the crypto markets.
• These solutions include encouraging sound innovation with Central Bank Digital Currencies (CBDCs) and limiting global crypto adoption.
• The authors note that while the bankruptcies of established projects have sparked increased calls for decentralization, true decentralization in crypto is illusory.
The Bank for International Settlements (BIS), an international financial institution owned by central banks, has recently released a bulletin entitled “Addressing the Risks in Crypto: Laying Out the Options” which looks to provide possible solutions to the numerous risks of the crypto industry. This bulletin was triggered by the high-profile booms and busts of 2022, including the FTX scandal, and suggests three possible lines of action to permanently eradicate the risks in the crypto verse before web3 becomes a threat to global financial stability.
The first possible line of action proposed in the bulletin is to encourage sound innovation with Central Bank Digital Currencies (CBDCs). By utilizing CBDCs, central banks can provide secure and reliable digital payments, thus allowing for the development of a more efficient and resilient financial system. Additionally, CBDCs could also be used to reduce systemic risk, as well as to facilitate capital flows and economic activity in the digital space.
The second line of action proposed by the BIS is to limit global crypto adoption. While cryptocurrencies have the potential to revolutionize the financial industry, they can also be extremely volatile and unpredictable, making them a threat to financial stability. The authors of the bulletin suggest that limiting the development, promotion and use of cryptocurrencies could help to reduce the risk of large-scale losses in the event of a crash.
Finally, the bulletin suggests that true decentralization in crypto is illusory. While decentralization is often touted as one of the main benefits of blockchain technology, the authors note that in reality, many of the larger crypto projects are highly centralized, and are thus vulnerable to manipulation and fraud. In order for decentralization to be truly effective, the authors suggest that crypto projects must be designed with security, transparency and accountability in mind.
Overall, the Bank for International Settlements has offered a number of possible solutions to address the risks of the crypto industry. By utilizing CBDCs, limiting global crypto adoption, and ensuring that crypto projects are designed with security, transparency and accountability in mind, the authors believe that these solutions could help to reduce the risk of high-profile implosions like the FTX scandal and create a more secure and reliable crypto ecosystem.