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IMF Calls for Regulation and Supervision in the Volatile Crypto Industry

IMF Calls for Regulation and Supervision in the Volatile Crypto Industry

The International Monetary Fund (IMF) has called for consistent regulation and adequate supervision in the crypto industry after a year of volatility and scandals that spilt over to the traditional finance space. In a report released today, the financial agency of the United Nations highlighted the turmoil caused by bankruptcies and scandals in the crypto industry, which affected the stability of the market and the banking sector.

Fallout of Terraform Labs and Collapse of FTX

The report cited the fallout of Terraform Labs and the collapse of the Bahamas-based crypto exchange FTX in 2022 as examples of extreme volatility in the crypto market. The report also pointed to the impact of California-based Silicon Valley Bank’s downfall on Circle’s USD Coin and DAI stablecoins. The bank’s demise led to the de-pegging of the stablecoins, highlighting the need for appropriate regulations in the crypto industry.

Crypto entities and stablecoin issuers should be subject to prudential capital requirements. To address the instability caused by events like these, the IMF recommended a regulatory framework that addresses critical activities and entities in crypto, including storage, transfer, exchange, and custody of reserves. The agency believes that crypto entities and stablecoin issuers should be subject to prudential capital requirements similar to those imposed on banking institutions.

The IMF highlighted the importance of addressing issues related to systemic risk, investor protection, financial integrity, and money laundering. The agency urged authorities to work together to establish a consistent and effective regulatory framework that addresses the unique challenges of the crypto industry.

Impact of the report

The report’s release comes at a time when regulators around the world are grappling with how to regulate the fast-growing crypto industry. The IMF’s recommendations could lead to greater regulatory scrutiny of the industry and could shape the direction of future regulations. The report serves as a reminder that, despite the potential benefits of cryptocurrencies, there are still significant risks that need to be addressed through appropriate regulations and supervision.

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