Crypto, DeFi may widen wealth gap, destabilize finance: BIS report
The Bank for International Settlements (BIS) warns that the rise of cryptocurrencies could threaten the traditional financial system and worsen wealth inequality. A report indicates that the crypto and decentralized finance (DeFi) sectors have reached a critical mass, raising investor protection concerns for regulators. The BIS highlights the importance of stablecoins in value transfer within crypto and calls for specific regulations to ensure their stability and reserve asset requirements for dollar redemption during market stress. Recent legislative efforts include the STABLE Act, which aims to create a regulatory framework for payment stablecoins, and the GENIUS Act, which establishes collateralization guidelines and compliance with Anti-Money Laundering laws. The BIS also notes that crypto markets may exacerbate income inequality, as larger investors can exploit less sophisticated retail participants, leading to wealth redistribution from poorer to wealthier individuals. The report emphasizes the need for proactive regulatory measures to address challenges posed by DeFi while promoting innovation.
