On 25 May 2023, the European Systemic Risk Board (ERSB) issued a report which considers the role of financial stability and macroprudential policy for cryptoassets, their service providers and decentralised finance (DeFi) applications. The report also covers the systemic implications of the cryptoasset market, its service providers and DeFi applications in the EU.

The report has been prepared by the ESRB’s Task Force on Crypto-Assets and Decentralised Finance and follows an earlier report prepared by the ESRB’s High-Level Exploratory Group on Crypto-Assets and Decentralised Finance which reviewed the scope and priorities for the analysis of cryptoassets and DeFi  from a financial stability perspective.

The report considers from a financial stability perspective three types of cryptoassets : native tokens, reserve-backed stablecoins and algorithmic stablecoins. It also provides a description of the DeFi ecosystem.

The report concludes that while the past year has been turbulent for cryptoassets and DeFi, systemic implications have not materialised. The evidence so far shows that the cryptoasset world has few links with, and provides few services to, the traditional financial sector and the real economy. Currently, none of these realised links are considered vital. However, the report adds that given the exponential growth dynamics of cryptoassets seen in the past, the future development of these markets is uncertain. There are various instances in which cryptoassets could pose a systemic risk, for example, if their inter-connectedness with the traditional financial system increases over time.

The report also identifies a number of possible policy options that could enable authorities to better understand the developments and potential financial stability implications of cryptoassets. This includes carrying out assessments of the risks posed by (a) cryptoasset conglomerates and (b) leverage using cryptoassets, and identifying potential additional actions to mitigate observed risks.

The report also contains annexes which:

  • Set out speculative scenarios of potential systemic risk.
  • Provide an overview of the key features of the EU’s Regulation on Markets in Crypto-assets.
  • Describe accounting for cryptoassets.