Business Markets News Report
June 29, 2023

Bank of Italy Calls for a Strong Legal Framework to Control Stablecoins

In Brief

In June, the Bank of Italy released a report urging policymakers to create a “robust, risk-based regulatory framework” for stablecoins in order to avoid stablecoin runs.

The Bank of Italy has recently emphasized the necessity of a robust legal framework for controlling stablecoins, highlighting the need for consumer protection and the prevention of potential stablecoin runs.

Bank of Italy calls for a strong legal framework to control stablecoins

The Bank of Italy released this call publicly in June, as part of its report on Markets, Infrastructure, and Payment Systems. The report underscored the urgency for policy makers to devise a strong, risk-based regulatory system for stablecoins, a form of cryptocurrency pegged to a reserve of assets.

Stablecoins, designed to reduce price volatility often associated with cryptocurrencies like Bitcoin and Ethereum, are rapidly gaining traction within the digital economy. They’re becoming an essential part of the burgeoning decentralized finance (DeFi) sector, acting as a bridge between traditional and decentralized finance.

Given this close relationship, the Bank of Italy highlights the necessity of a unified regulatory strategy for both stablecoins and DeFi. The report cautions that an abrupt rise in stablecoin adoption might trigger a fresh wave of DeFi innovation. This would intensify the connections between traditional and decentralized financial systems.

Simultaneously, the Bank of Italy suggests that the industry must not overlook the fact that most decentralized protocols are driven by key stakeholders. Therefore, these initiatives need to adopt traditional and responsible company structures for operating in a regulated financial sector. The report recognizes the wider potential of blockchain technology. It can support decentralized identity systems, real estate, supply chain management, voting systems, and carbon credit verification beyond financial applications.

However, the Bank explains that not all crypto activities or assets need financial services regulation. It encourages governments to work together to create an international regulatory framework.

Italy and Stablecoins

Despite the growing prevalence of cryptocurrencies globally, surveys conducted by the Bank of Italy reveal that only about 2% of Italian households own cryptocurrencies. Market exposure of Italian intermediaries to such assets remains relatively low as well. As European Union legislation concerning crypto assets evolves, Italian officials have already begun laying the groundwork for a regulatory structure.

This approach from the Bank of Italy highlights an ongoing global discourse about the regulation of emerging digital assets. Stablecoins play an expanding role in the DeFi world. This makes their regulation a key discussion point among global financial bodies. This also highlights a shift in finance. New regulatory paradigms are emerging. These can navigate the constantly changing landscape of digital assets more effectively.

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About The Author

Nik is an accomplished analyst and writer at Metaverse Post, specializing in delivering cutting-edge insights into the fast-paced world of technology, with a particular emphasis on AI/ML, XR, VR, on-chain analytics, and blockchain development. His articles engage and inform a diverse audience, helping them stay ahead of the technological curve. Possessing a Master's degree in Economics and Management, Nik has a solid grasp of the nuances of the business world and its intersection with emergent technologies.

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Nik Asti
Nik Asti

Nik is an accomplished analyst and writer at Metaverse Post, specializing in delivering cutting-edge insights into the fast-paced world of technology, with a particular emphasis on AI/ML, XR, VR, on-chain analytics, and blockchain development. His articles engage and inform a diverse audience, helping them stay ahead of the technological curve. Possessing a Master's degree in Economics and Management, Nik has a solid grasp of the nuances of the business world and its intersection with emergent technologies.

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