- The IMF warned countries of the risks associated with the growth of the crypto space in a report on Tuesday.
- More than 16,000 tokens have been listed on the stock exchange, but only around 9,000 exist today, according to the report.
- The fund said stablecoins are vulnerable to volatility and investor leakage despite being pegged to another asset.
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The International Monetary Fund (IMF) has issued a warning regarding growing risks in the expanding cryptocurrency space, including fraud, excessive speculation and potential “runs” on seemingly more stable assets, in a released report Tuesday.
Crypto in all its forms, like digital coins like bitcoin and stablecoins like USDC, has spread around the world. Almost half of the world’s central banks have considered creating their own digital currencies, which would be centralized and more secure than pure cryptocurrencies.
“Investor protection risks are significant for crypto assets and decentralized finance,” the report said in the background paper.
Over 16,000 tokens have been listed on various exchanges like Coinbase, Binance, and Kraken over time, but only around 9,000 exist today, according to the report. Some of these tokens were purely speculative and impacted only by social media trends.
“Investors are – likely to incur losses if tokens cease to exist – something less common in regulated securities markets,” the IMF said.
Some countries like Argentina, Mexico and Thailand have blocked exchanges from offering tokens with special characteristics, according to the report. Regulators around the world have stepped up their oversight of the crypto market, while some commercial banks have blocked their customers from transferring money to certain crypto exchanges.
China’s recent ban on all mining and crypto trading is the most severe example to date of the kind of pressure the industry can be under.
Another factor the IMF insisted on was that stablecoins, which are tied to an underlying asset such as cash or bonds, were vulnerable to volatility and investor leakage.
A few months ago, investors saw the value of a decentralized financial token called titan, which was part of an Iron Finance algorithmic stablecoin project, drop in hours from around $ 60 to a tiny fraction of one hundred. Whale accounts offloaded their stock and triggered the equivalent of a bank run, as small traders rushed to collect their money. The collapse even caught billionaire Mark Cuban off guard. “I was touched like everyone else,” he tweeted at the time.
“A country-led investor can also lead to cross-border spillovers if large global crypto exchanges are involved. The concentrated ownership of stablecoins by market makers could also trigger wider contagion,” the report said.
Stablecoins have also been criticized for the composition of their reserves – the largest to date is the tether token, which claimed to be fully backed by US dollars, but is largely backed by short-term corporate debt. term.
The IMF has recommended countries work together to address the technological, legal, regulatory and supervisory challenges that crypto assets can bring.
“Where standards have not yet been developed, regulators should use existing tools to control risk and implement a flexible framework for crypto assets,” the report said.
The IMF said central bank digital currencies could solve some of the stability and transparency issues around the crypto market.