Urging for stronger oversight on stablecoins, Italy’s top banking authority recently made its stand clear in its latest “Markets, Infrastructures and Payment Systems” report. The authority stressed the necessity for a stringent, risk-oriented regulatory framework akin to the financial conduct standards applied in other industries.
Notably, the report highlighted the rise of cryptocurrencies and several unregulated “boom and bust cycles”, which it said have led to substantial consumer harm. Given their close ties to decentralized finance (DeFi), the report emphasized that regulatory focus should prioritize stablecoin issuers.
Stability, a key promise of stablecoins, has been under scrutiny. The authority cited the collapse of Terra’s algorithmic stablecoin TerraClassicUSD (USTC) in May 2022 as a stark example of stability failure.
The authority addressed “the decentralization illusion,” where many protocols claiming to be decentralized are run by core stakeholders who can yield ownership benefits. It advised bringing such projects under traditional, accountable business structures as a prerequisite for operation in the regulated financial sector.
As the potential for blockchain goes beyond financial use, spanning decentralized identification, real estate, supply chain, voting, and carbon credits, the need for robust regulation is further amplified.
Also Read: Federal Reserve Chair Powell on Stablecoin: A Form of Money?
Given the global nature of blockchain technology, the banking authority has urged global cooperation to develop an international regulatory framework that transcends national borders.
