The Bank for International Settlements (BIS), a worldwide banking coordinating organization and "central bank of central banks," has published a bulletin to summarize the solutions to crypto currency legislation in 2023.
According to the BIS (1), crypto currencies should either be outlawed, isolated, or controlled. The BIS published a cautious thesis titled Addressing the risks in crypto currency: laying out the choices. In this thesis, the BIS argued that authorities could no longer ignore crypto currency after the FTX/Alameda fiasco.
The recent crypto market turmoil highlights the urgency of tackling the risks. There are different lines of policy action, including issuing central bank digital currencies to encourage sound innovation. #BISBulletin #Crypto #CBDC #Regulation https://t.co/DnI4GXi35X pic.twitter.com/qVDPSWBBwC
— Bank for International Settlements (@BIS_org) January 12, 2023
According to the authors' point of view, the failure of FTX was evidence that decentralization in crypto currency is frequently an illusion because governance is centralized in the vast majority of DeFis.
As a consequence of this, the sector is not yet prepared to be self-governed as a whole. The industry is vulnerable to various flaws stemming from the traditional financial sector, and the inherent characteristics of crypto raise the stakes significantly. As a result, leaving crypto currency investments open to retail investors without sufficient regulation becomes increasingly dangerous:
It came out that multiple crypto currency business ideas were nothing more than elaborate Ponzi schemes. When combined with the massive information gap that customers must navigate, these traits pose a significant threat to the security of investors and the market's integrity.
Officers from the BIS have come up with three different models (or "approaches") of how states should manage crypto.
To begin, they may completely outlaw crypto currencies to remove all of the risks involved with them. It will prevent investors from falling victim to scams and will considerably boost the reliability of the world's financial systems.
However, crypto restrictions are easy to get through, and even more importantly, they go against the fundamental values upon which our society was founded.
After that, authorities will be able to separate crypto from tradfi (the "Contain" strategy). The experts at the BIS admit that certain seclusion will not provide better protection for investors in 2023, despite being impossible.
Are CBDCs a genuine alternative to the regulation of crypto currency?
At long last, governments can regulate crypto currencies in a way that way that is similar to that of traditional financial institutions.
The implementation of appropriate legislation will be beneficial to "Responsible players" In the meanwhile, due to the characteristics of the DeFi section, the process of locating reference points might be pretty tricky.
In closing, the BIS experts discussed a variety of "alternatives" that exist outside of Web3 and have the potential to be just as quick and affordable as DeFi protocols. First, these are next-generation digital remittance frameworks like SEPA in Europe or FedNow in the United States.
In addition, governments can shield their populations from the dangers posed by crypto currencies by introducing central bank digital currencies that are functional and simple to use. As a result, TradFi can adopt the most amazing aspects of the design of DeFi, such as programmability, composability, and tokenization.
The Bank for International Settlements (BIS) acknowledged that the worst "crypto warnings" had come true during the collapse of centralized crypto services Celsius, Voyager, and Three Arrows Capital in the third quarter of 2022 and the severe reduction in the price of Bitcoin (BTC).
