Financial Stability Board Formulates G20 Crypto and Stablecoin Plan

The Financial Stability Board is an international body created by the G20 that develops a set of advice and proposals on crypto regulation around the world.

In a series of recent statements released about four days ago, the Financial Stability Board said most stablecoins do not comply with the FSB’s recommendations for maintaining financial stability.

This report follows another 2020 report with 10 high-level recommendations. It featured regulation, oversight and monitoring of the so-called global stablecoin situation.

Moving forward to 2022, the Advisory Board aims to understand previously published recommendations and to identify gaps in existing frameworks with respect to current policy. What are your level recommendations and what they mean for the future of the cryptocurrency industry?

What does the FSB report contain?

The latest report by the Financial Stability Board aims to highlight consistent and effective regulation of stablecoins. Furthermore, it includes how we can work to ensure a stable financial scenario around the world.

The FSB also highlights the importance of flexibility while coming up with these regulations to be implemented around the world.

The report consists of three main pillars: recent market developments and characteristics of existing stablecoins, policy developments, and a review of 2020 high-level recommendations.

Recent market trends considered

The first section of the report has a discussion of recent pressures on the crypto market as a whole, describing existing cryptocurrencies as stablecoins and identifying gaps and problems for further emphasis. After a sharp rally, the sudden crypto winter of 2022 calls for revised high-level recommendations.

According to the report, the impact of the cryptocurrency market collapse is still confined within the cryptocurrency ecosystem, leaving the traditional financial ecosystem relatively unaffected. However, new vulnerabilities have been discovered in stablecoins that could have a major impact in the future. These vulnerabilities include limited ability for users to redeem directly, poor quality and lack of transparency in reserve portfolios, flawed business models and reliance on unsustainably high returns. I have.

The FSB has analyzed various existing stablecoins and found that most of them promise to maintain a stable value. However, most of them are issued by unregistered entities and lack a reliable mechanism.

Policy Development on Cryptography

The Financial Stability Agency notes that various jurisdictions and standard-setters have made significant progress. New regulations and laws have been adopted based on high-level recommendations. This can help address stablecoin risk or simply use regulation to achieve compliance.

However, it appears that additional work is being done at various intersections to ensure proper regulation, supervision and monitoring. Some bodies have yet to implement and adopt stablecoin-specific policies. Given the dynamic nature of stablecoins, regulatory bodies around the world have adopted various measures that rely on existing sectoral standards and policies for stablecoins.

Discussed effects of tether

To highlight the vulnerabilities of stablecoins, the FSB report focuses on Terra’s collapse. This was the incident that led to a chain of events leading up to the cryptocurrency winter of 2022.

In a July 2022 letter to G20 finance ministers and central bank governors, Financial Stability Board Chairman Klaas Nott pointed to the vulnerabilities posed by Terra.

UST claims the stablecoin will maintain its peg, so traders will leverage arbitrage between UST and Luna by expanding and contracting the supply and demand of the token to maintain its value against the US dollar Assuming you are willing.na

The arbitrage method allowed us to exchange 1 UST for $1.00 worth of Luna. This $1.00 Luna can be exchanged for 1 UST. A trader could make an arbitrage profit if the market price of the UST rose or fell above his $1.00 peg. This mechanism relied on arbitrage activity and an active trading market.

Review high-level recommendations

The FSB has reviewed its high-level recommendations and actively revisited them to accommodate updates to the crypto ecosystem.

The main idea, among other recommendations, was to ensure that the necessary tools and resources were available to the authorities. This may help us regulate and supervise our arrangements.

Similarly, authorities must apply comprehensive regulatory, supervisory and surveillance requirements that are inherently consistent and effective.

National and international cooperation is required to ensure thorough monitoring and continuous learning. This is to effectively facilitate effective communication, information sharing and consultation to ensure comprehensive regulation. These arrangements themselves need to be effective and flexible for faster resolution.

Conclusion

The proposal comes at a time when several countries around the world are acknowledging the impact of cryptocurrencies. This could create momentum for the industry.

In its high-level recommendations, the FSB has repeatedly referred to greater oversight by government agencies and authorities. Additionally, we are asking crypto service providers to provide a detailed framework and a more transparent approach while disclosing the risks associated with their projects.

One of the most important aspects the FSB will focus on is the impact of digital currency markets on traditional markets. It is very likely that this will become a reality in the future.

The FSB said in its report that the framework and guidelines should be flexible enough to keep up with the evolving cryptocurrency market. But it certainly has the potential to make us question the true nature of cryptocurrency, which is decentralization.

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