On 11 July 2023, the Bank for International Settlements (BIS) published a report on the crypto ecosystem: key elements and risks.
The report reviews the key elements of the crypto ecosystem and assesses its structural flaws. It also discusses the risks that it poses and the options for addressing them. It also identifies data gaps and the ways to alleviate them.
The report provides the following three key takeaways:
- Due to underlying economic incentives, the crypto ecosystem is highly fragmented and characterised by congestion and high fees.
- Despite an original ethos of decentralisation, crypto and decentralised finance (DeFi) often feature substantial de-facto centralisation, which introduces various risks. An example concerns stablecoins, which piggyback on the credibility of the central bank’s unit of account and may pose risks to monetary sovereignty.
- While DeFi mostly replicates services offered by the traditional financial system, it does not finance any activity in the real economy but amplifies known risks. Moreover, as DeFi does not finance activity in the real economy, its growth is driven by the speculative influx of new users, with substantial risks to investors.