Banca D'Italia claims crypto "booms and busts" caused "significant consumer harm."
At the forefront of financial innovation, Italy’s principal banking institution has pushed for a comprehensive regulatory framework for stablecoins. This call to action aims to avoid what could be a catastrophic situation: a potentially destabilizing "run" on stablecoins.
The financial sector watchdog, Banca D'Italia, has recently highlighted the requirement for dependable, risk-informed regulations in its "Markets, Infrastructures, and Payment Systems" report for June.
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According to the bank, the new regulations should primarily target stablecoin issuers, considering their pivotal role within the emerging Decentralized Finance (DeFi) ecosystem.
A robust, risk-based regulation of stablecoins ensuring the prevention of ‘runs’ on their issuers is a necessary condition to reduce the fragility of the DeFi ecosystem, given the prominent role of this asset class in decentralized finance.
The report clearly articulates that the cyclical pattern of "booms and busts" in the dynamic cryptocurrency arena led to "significant consumer harm.” Therefore, the bank insists on the need for stringent regulation.
In light of the potential effects of stablecoins on the DeFi landscape, the report emphasized the importance of a balanced approach to regulation and innovation. The bank reasoned:
It is crucial that policy interventions on stablecoins and DeFi are well synchronized since the diffusion of stablecoins <...> is likely to spur new waves of DeFi innovation and increase the interconnection between traditional and decentralized finance.
The report also called into question the supposed "decentralization" of many protocols. It insisted on the need for transparency, underscoring that these projects are often controlled by a few core stakeholders who may benefit disproportionately.
Such projects should be brought back to traditional, accountable business structures as a pre-condition for operating in the regulated financial sector.
Nevertheless, the central bank clarified that not all cryptocurrency-related activities or assets necessitate stringent regulation. Banca D'Italia claimed that "trading and holding do not serve customers’ financial needs through a payment or investment function,” therefore, it doesn't need specific oversight.
Italy's central bank urged international cooperation in creating a global regulatory framework. This call recognizes the borderless nature of blockchain technology, demonstrating the bank’s forward-thinking stance on the future of digital assets.
Italy is not the only country working on stablecoin regulations, at the beginning of June, the US House Financial Services Committee unveiled the latest draft of the landmark stablecoin bill.
