How Chinese Central Bank’s Call for Crypto Regulation Impacts Web 3.0

The People’s Bank of China on Crypto Regulation and DeFi

The People’s Bank of China (PBoC) has addressed the issues of cryptocurrency regulation and decentralized finance (DeFi) in its latest financial stability report, where it called for a global effort to set up crypto rules.

In its new financial stability report, the Chinese central bank has devoted a section to crypto assets for the first time ever, emphasizing the necessity of regulating the industry through joint efforts from different countries. The report states that the cryptocurrency market represents 1% of the global financial system, and its link with traditional finance is limited.

According to the Chinese AI reporter Colin Wu, the PBoC’s recent financial stability report has devoted a separate section to crypto assets. In the paper, the central bank asked the governments of the world to apply the “same business, same risks, same supervision” approach to avoid regulatory arbitrage.

The report pointed out a number of possible risks caused by cryptocurrency regulatory arbitrage, including vulnerabilities to hacker attacks, market manipulation, and worries related to DeFi governance mechanisms. The PBoC specifically mentioned the Terra ecosystem collapse and the fall of FTX exchange in 2022, stressing the need to manage regulatory fragmentation and eliminate supervision arbitrage.

China’s Crypto Regulation and Adoption

In 2021, the People’s Bank of China (PBoC) announced measures to combat crypto adoption within mainland China, aiming to strengthen inter-departmental coordination in cracking down crypto activity. Despite the ban on virtually all crypto transactions and mining, mainland China remains a major crypto-mining hub.

China’s call for a joint global regulation of the cryptocurrency industry follows a few years after the government of mainland China issued a major ban on crypto. Animoca co-founder Yat Siu believes this could signify some “big moves” in crypto regulation in mainland China, while other local execs argue that China’s crypto stance is unrelated to the crypto-friendly atmosphere in Hong Kong.

The emergence of Web 3.0, with its decentralized applications (DApps), non-fungible tokens (NFTs), decentralized autonomous organizations (DAOs), and decentralized finance (DeFi) is expected to have an impact on business. This begs the question of how Web 3.0 is different from Web 2.0 and whether Metaverse and Web 3.0 are the same.