large Italy’s top banking authority, Bankitalia,has warned of potential risks that come with the use of stablecoins, urging regulators to introduce significantly more robust and risk-based regulations. In its Markets, Infrastructures and Payment Systems report for June 26th, Bankitalia explained that the cryptocurrency industry is challenging due to its lack of regulation, citing the string of “boom and bust cycles” with cryptocurrencies in addition to the collapse of Terra’s algorithmic stablecoin TerraClassicUSD (USTC) in May 2022 as prime examples. This, the Bank stressed, has resulted in undeniable harm towards consumers. Bankitalia has made clear in its report that there need to be regulatory measures set forth in particular for the branch of stablecoin issuers connected with decentralized finance (DeFi) since the emergence of stablecoins can boost the momentum of DeFi by further intertwining it with traditional fiscal practises.
Looking beyond the implementation of meaningful regulations to prevent cyber risks, the authority also looked into the organisational aspects of decentralised ledger technologies (DLT) since the prevalence of ill-structured organisations of said technologies could make the financial system more vulnerable due to the lack of patrolled controls attached. To counter the “decentralization illusion” as it pertains to many decentralised networks, Bankitalia highlighted that inactivity of projects have to be identified so that practicable business outlooks still remain intact.
Most relevantly, in terms of creating an interlinked global framework, there is much to be said about country-based collaborations to build regulative standards that transcends international borders considering the interdependent characteristics of this space. To draw as many benefits from communal engagement the Central Bank added that non-financial utilisations such as voting, the validation of digital credentials, carbon credits – must continue to be observed as it matures over
