ECB Chief now has eyes on DeFi and Crypto lending

Sahana Kiran
DeFi euro
Source – Pixabay

The bears have unleashed the bad side of the crypto-verse and DeFi. With an array of projects crashing amidst the gruesome bear market, investors are in a frenzy. Regulators have expressed grave concern about the same. However, most of them were still evaluating the crypto lending firm, Celsius Network‘s decision to put a hold on withdrawals. Meanwhile, the President of the European Central Bank, Christine Lagarde voiced her opinion on the crypto lending industry.

The crypto-verse is a vast industry that entails a number of things. From DeFi to meme tokens and now NFTs, it’s a whole package. But not so much for regulators. While most lawmakers lay their focus on regulating the trading aspect, they often forget about the aforementioned parts of the industry. Now, taking a keen look into crypto asset staking and lending, Lagarde said,

“MiCA II should regulate the activities of crypto-asset staking and lending, which are definitely increasing.”

MiCA or Markets in Crypto-Assets focuses on regulating the crypto market across the EU. This framework is expected to come into effect by 2024. With this underway, Lagarde wanted it to entail all-things crypto and hence urged for a second regulatory framework.

She added,

“Innovations in these unexplored and uncharted territories put consumers at risk, where the lack of regulation is often covering fraud, completely illegitimate claims about valuation, and very often speculation as well as criminal dealings.”

An array of them speculated that Celsius’s decision to pause withdrawals could be the reason behind Lagarde’s latest interest in the crypto lending arena.

Is DeFi a real threat to financial stability?

Centralized systems and involved individuals find it rather difficult to accept the level of decentralization the crypto-verse offers. The DeFi space’s level of decentralization is quite hard to match. While the newbies have just started to explore the likes of the DeFi space, the ECB chief was concerned.

She went on to suggest that DeFi had the ability to pose a “real risk to financial stability.” As a result, this would be a part of the second regulatory framework. Just as the crypto-verse has been broadening its horizons regulators seem to be following suit.