ECB Chief Lagarde: Crypto and Defi Could Pose ‘Real Risks’ to Financial Stability

The president of the European Central Bank (ECB), Christine Lagarde, says crypto assets and decentralized finance (defi) have the potential to pose “real risks” to financial stability. She has some regulatory suggestions to supplement Europe’s Markets in Crypto Assets Regulation (MiCA) bill.

ECB President Christine Lagarde talked about cryptocurrency regulation at the European Parliament’s Committee on Economic and Monetary Affairs hearing Monday. She said:

We believe, as we are embarking on this work concerning crypto assets and the risk that they pose, that crypto assets and decentralized finance (defi) have the potential to pose real risks to financial stability.

“This would be particularly the case if the rapid growth of crypto-asset markets and services continue … and the interconnectedness with both the traditional financial sector and the broader economy is intensified,” the ECB chief added.

However, she noted: “For the moment, the links between the private sector crypto assets and traditional finance remain still limited — for the moment.”

Lagarde proceeded to talk about the Markets in Crypto Assets Regulation (MiCA) bill. She emphasized that the European Systemic Risk Board (ESRB), which she chairs, “supports the need for quick adoption and implementation” of MiCA.

The ECB chief noted that she is encouraged by the progress of MiCA. However, she added that to her understanding, it “will not be implemented until 2024,” which she stressed “is a long way away.”

Lagarde then suggested some additional provisions to the current MiCA bill. Referring to the MiCA bill with add-on provisions as MiCA2, she explained that MiCA2 “Should address the risk of interconnectedness with respect to financial institutions’ exposure to crypto assets.”

It should also “fully cover decentralized finance (defi)” and regulate crypto staking and lending activities, she said. The ECB boss noted that the current MiCA bill does not cover bitcoin but she hopes it will be covered in MiCA2.

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