IMF warns of the danger to the financial system from 'disappearing' crypto coins and the instability of stablecoins
Bitcoin balloon Andriy Onufriyenko
The IMF warned countries about the risks associated with the growing crypto space in a report on Tuesday.
More than 16,000 tokens have been listed on exchanges, but only about 9,000 remain today, the report said.
The fund said stablecoins are prone to volatility and investor runs even though they are tied to a different asset.
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The International Monetary Fund (IMF) issued a report on Tuesday warning of the growing risks in the expanding cryptocurrency space, including fraud, excessive speculation and potential "runs" on seemingly more stable assets.
Crypto in all of its forms, such as digital coins like Bitcoin and stablecoins like the USDC, have spread around the world. Almost half of the world's central banks have dealt with creating their own digital currencies that would be centralized and more secure than pure cryptocurrencies.
"For crypto assets and decentralized finance, the risks of investor protection are great," the report says in the summary.
Over time, more than 16,000 tokens have been listed on various exchanges such as Coinbase, Binance, and Kraken, but only about 9,000 exist today, the report said. Some of these tokens were purely speculative and were solely influenced by social media trends.
"Investors are likely to suffer losses from token expiry - something that is less common in regulated securities markets," the IMF said.
Some countries like Argentina, Mexico and Thailand have stopped exchanging tokens that have special properties, the report said. Regulators around the world have stepped up their oversight of the crypto market, while some commercial banks have prevented their customers from transferring money to certain crypto exchanges.
China's recent ban on all crypto mining and trading is the toughest example yet of the pressures the sector can face.
Another factor the IMF stressed was that stablecoins tied to an underlying asset such as cash or bonds were prone to volatility and investor storms.
A few months ago, investors saw the value of a decentralized financial token called Titan, which was part of Iron Finance's algorithmic stablecoin project, drop from about $ 60 to a tiny fraction of a cent in a matter of hours. Walk accounts dumped their stocks, triggering the equivalent of a bank run as smaller traders rushed to get their money back. The meltdown even surprised billionaire Mark Cuban. "I was hit like everyone else," he tweeted at the time.
“A country-based investor can also lead to cross-border spillovers when large global crypto exchanges are involved. The concentrated possession of stablecoins by market makers could also trigger greater contagion, ”the report said.
Stablecoins have also come under fire for the composition of their reserves - the best known is the tether token, which is supposedly fully backed by US dollars but largely backed by short-term corporate debt.
The IMF recommended that countries work together to address the technological, legal, regulatory and regulatory challenges that crypto assets can bring.
"Where standards have not yet been developed, regulators need to use existing risk control tools and implement a flexible framework for crypto assets," the report said.
The IMF said the central bank's digital currencies could solve some of the stability and transparency problems surrounding the crypto market.
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