The European Central Bank (ECB) recently published the “Macroprudential Bulletin”, a research paper that has briefly addressed “issues” prompted by crypto speculations.
Crypto Venture Advisor at Presight Capital, Patrick Hansen has posted a Twitter thread outlining keynotes and three topics discussed in it that includes climate risk of crypto, DeFi, and Stablecoins.
ECB asked authorities to emphasize more energy-efficient consensus mechanisms such as Proof-of-stake (PoS) rather than sticking to the “crypto version of the fossil fuel car” consensus like Proof-of-Work (PoW), citing climate concerns.
According to the ECB, policy actions, such as disclosure requirements, a carbon tax on crypto transactions or holdings, and outright bans on mining are “probable.” This means ECB is asking to ban crypto mining for environmental concerns.
Also, the research paper has stated the growing crypto speculation is also sinister for the financial stability of Europe.
In the research paper, ECB states that DeFi protocols are not defining the real meaning of decentralization.
“For instance, 80% of the total supply in the circulation of Uniswap’s governance token UNI is held by the team, early investors, and token holders with balances of over 1 million UNI. Further, 1% of the total token holder addresses hold around 97% of the total token supply”, the blog stated.
As DeFi protocols deployment and governance require human interactions, it might be possible that regulatory boundaries could be forced on the protocol via governance tokens, decentralized autonomous organizations (DAOs), and platform developers.
According to the research paper, Algorithmic Stablecoins are also losing their initial value to use as a relatively safe “parking space” for crypto volatility and as a bridge to trade crypto-assets.
With the emerging DeFi projects, many people believe that stablecoin could outperform traditional payment systems. However, the ECB thinks that this technological superiority might be “temporary”. As per the paper, Algorithmic stablecoins don’t hold any inherent value and should be treated as unbacked crypto assets.
“Given the rapid growth of the stablecoin market, stablecoins need to be brought into the regulatory perimeter with urgency. A good example is the EU’s proposed MiCA Regulation, which needs to be implemented urgently,” reads the blog.
Also Read: EU Agrees on MiCA Regulation for Crypto Assets & Stablecoin
