Italy’s Central Bank Urges for Stablecoin Risk Prevention Framework

Italy’s most powerful banking regulator has urged for a “solid, risk-oriented” regulatory structure for stablecoins, which could help avert a potentially catastrophic situation – a “run” on stablecoins.

Regulatory Attention on Stablecoin Issuers

The June 2023 Markets, Infrastructures and Payment Systems report recently issued by the central bank has urged regulators to enforce the same financial conduct regulations on stablecoin issuers in the sector.

The bank declared that the proliferation of cryptocurrencies along with multiple “boom and bust cycles” in an unregulated atmosphere has resulted in “significant consumer detriment.”

The bank emphasized that regulatory attention should be focused on stablecoin issuers in particular due to its strong ties to DeFi.

“It is essential that actions taken in regards to stablecoins and DeFi are in harmony, as the spread of stablecoins is likely to bring about novel DeFi developments and strengthen the link between conventional and decentralized finance,” the statement continued.

The Italian banking authority also remarked that stablecoins “have not been demonstrated to be stable”–highlighting the most prominent failure of Terra’s algorithmic stablecoin TerraClassicUSD (USTC) in May 2022.

The bank declared that the industry must also dispel the misconception of “decentralization” by recognizing that most decentralized protocols are usually run by major stakeholders who are typically able to “gain ownership advantages.”

“As a pre-requisite for engaging in the regulated financial sector, such projects should be returned to traditional, responsible business models,” the bank stated.

OpenAI’s ChatGPT has returned to Italy after meeting the requirements for transparency.

Blockchain Technology for Non-Financial Purposes

The bank, however, emphasized that it is not necessary to apply financial services regulations to every cryptocurrency asset or activity.

Blockchain technology can be used for a variety of non-financial purposes, such as decentralized identification, real estate, supply chain management, voting, and carbon credits.

The Bank of Italy has also urged countries to work together and create a global regulatory system, as blockchain technology is not limited by national boundaries.

Magazine: The Dangers of Unstablecoins: Depegging, Bank Runs, and More.