Cryptocurrency

IMF Issues New Recommendations for DeFi Governance

The financial institution is concerned with the fast growth of fintech firms and inadequate regulation.

Cryptocurrency

IMF Issues New Recommendations for DeFi Governance

The financial institution is concerned with the fast growth of fintech firms and inadequate regulation.

The International Monetary Fund (IMF) has recommended new measures with the goal of increasing regulation in the decentralized finance (DeFi) sector.

In chapter 3 of its most recent Global Stability Report titled “The Rapid Growth of FinTech: Vulnerabilities and Challenges for Financial Stability,” IMF outlines the need for increased regulation. The institution claims that while Fintech can be used to increase efficiency, competition, and broaden access to financial services — the speed at which fintech firms are growing is risky and unstable, IMF accredits this to Fintech’s inadequate regulation and close connection with traditional financial systems.

The report focuses on three main types of FinTech: digital banks (“neobanks”), long-established fintech firms, and DeFi. In the case of DeFi, IMF argues that regulations should focus on the elements of the crypto ecosystem, particularly stablecoin issuers and centralized exchanges.

In a related blog post from IMF, the Institution calls for “Policies that target both FinTech firms and traditional banks proportionately” — with this type of regulation, they believe that FinTech can maintain the opportunity it currently offers but with less risk. For neobanks, IMF recommends stronger capital, liquidity, and risk-management requirements should be put in place proportionately to present risk. As for established entities, it is recommended that more supervision may be needed on less technologically advanced banks, as their older business models may cause them to be less sustainable over time.

As for the crypto space, IMF states that “Supervisory authorities should also encourage robust governance, including industry codes and self-regulatory organizations. These entities could provide an effective conduit for regulatory oversight.” In regards to the individual using these FinTech offerings, IMF says there should be more “user education to help identify platform-specific risks,” which it claims would close the “information gap between retail and institutional investors.”

In other crypto news, Stablecoin Protocol ‘Beanstalk’ Loses Over $182M to Hackers.

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