FSB to study DeFi’s potential stability risks and vulnerabilities
The US’ Financial Stability Board (FSB) has outlined the potential stability risks of decentralised finance (DeFi), determining that DeFi is subject to many of the same vulnerabilities as traditional finance and more work needs to be done to mitigate any potential risk.
FSB report outlines DeFi stability risks
The Financial Stability Risks of Decentralised Finance report was delivered to February’s G20 Finance Ministers and Central Bank Governors meeting.
The FSB report states that “specific features” of DeFi may see some of the vulnerabilities common to both DeFi and traditional finance – including liquidity mismatches, leverage and interconnectedness – “play out differently” than in traditional finance.
The FSB believes the extent to which these vulnerabilities impact financial stability also largely depends on the interconnectedness between DeFi, traditional finance and the wider economy. As it stands “these interlinkages are limited”, but if DeFi was to expand “then the scope for spillovers would increase”.
Following the report, the FSB intends to analyse the growth and implications of tokenisation; explore approaches to fill data gaps to measure and monitor the interconnectedness of DeFi; consider whether the FSB’s policy recommendations for the international regulation of cryptoasset activities may need to be enhanced; and consider, alongside standard-setting bodies, how DeFi activities across different jurisdictions should be carved up in terms of regulation.
