• About Us
  • Careers
  • Contact
No Result
View All Result
Wednesday, June 25, 2025
DeFi Planet
  • News
    • People
    • Business
    • Crime
    • Regulation
    • Crypto
    • CBDC
  • Markets
    • Bitcoin
    • Ethereum
    • Stablecoins
    • Altcoins
    • Crypto ETFs
    • Memecoins
  • Policy
  • Articles
    • Press Releases
    • Opinion
    • Explainers
    • Guest Post
    • Sponsored
  • Directory
    • Companies
    • People
    • Products
    • Wallets
  • Multimedia
    • Videos
    • Podcasts
  • Learn
    • DeFi Basics
    • Tutorials
    • Reviews
    • Blockchain Fundamentals
  • Research
    • Case Studies
  • Explore
    • DeFi
    • Crypto Gaming
    • NFT
    • DAO
    • Metaverses
  • Jobs
  • Markets Pro
    • DeFi Planet Pro
    • Spend Crypto
    • Swap Crypto
    • Coin Prices
    • Crypto Exchanges
    • Crypto Analyzer
  • News
    • People
    • Business
    • Crime
    • Regulation
    • Crypto
    • CBDC
  • Markets
    • Bitcoin
    • Ethereum
    • Stablecoins
    • Altcoins
    • Crypto ETFs
    • Memecoins
  • Policy
  • Articles
    • Press Releases
    • Opinion
    • Explainers
    • Guest Post
    • Sponsored
  • Directory
    • Companies
    • People
    • Products
    • Wallets
  • Multimedia
    • Videos
    • Podcasts
  • Learn
    • DeFi Basics
    • Tutorials
    • Reviews
    • Blockchain Fundamentals
  • Research
    • Case Studies
  • Explore
    • DeFi
    • Crypto Gaming
    • NFT
    • DAO
    • Metaverses
  • Jobs
  • Markets Pro
    • DeFi Planet Pro
    • Spend Crypto
    • Swap Crypto
    • Coin Prices
    • Crypto Exchanges
    • Crypto Analyzer
No Result
View All Result
DeFi Planet
No Result
View All Result

Bank of England Sets Out Its Views On Crypto and DeFi

25 March 2022
in Latest News, News, Policy
Reading Time: 6 mins read
109 4
Home News Latest News

Contents

Toggle
  • Financial stability implications of cryptoassets and associated markets
  • Risks to U.K. financial stability
  • Indicators for monitoring risks from cryptoassets and DeFi

On 24 March 2022, the Financial Policy Committee (FPC) of the U.K.’s central bank, the Bank of England (BoE), published a document titled: “Financial Stability in Focus: Cryptoassets and decentralised finance”. 

In it, the BoE sets out its views on cryptocurrencies (which it calls “cryptoassets”) and considers the potential financial stability implications and risks from the crypto sector.  For now, however, the BoE is of the view that:

“direct risks to the stability of the UK financial system from cryptoassets and DeFi are currently limited, reflecting their limited size and interconnectedness with the wider financial system.”

Nonetheless, the BoE notes that as the crypto sector grows in importance, risks could potentially arise from interlinkages between cryptoassets and the traditional financial sector. They may also be new forms of financial and operational risk for financial institutions.  In any case, the BoE is concerned about the growth in activity outside of the existing regulatory perimeter and recognizes the challenges inherent in regulating new forms of entities and business models.

Therefore, the BoE will (through the FPC) seek to ensure that risks to financial stability arising from cryptoassets and Decentralized Finance (DeFi) markets and activities are mitigated.  The BoE said:

“if the pace of growth seen in recent years continues, and as these assets become more interconnected with the wider financial system, cryptoassets and DeFi will present financial stability risks.”

Financial stability implications of cryptoassets and associated markets

The BoE set out the following as its views on the financial stability implications of cryptoassets.

  1. The technology underpinning cryptoassets has the potential to reshape activity in the traditional financial sector.
  2. Innovation in cryptoassets and the technology underpinning them could bring several  benefits.
  3. The mitigation of financial stability risks from cryptoassets and associated markets is essential to ensuring the benefits from new technologies can be realized sustainably.
  4. The BoE has identified the key risk channels that could stem from cryptoassets and associated markets.

Risks to U.K. financial stability

The BoE believes that risks to financial stability may manifest in the cryptoasset industry thereby creating risks to systemic financial institutions and core financial markets.  The BoE also expects risks to emanate from future mainstream use of cryptoassets for payments.  Similarly, it sees a potential impact on real economy balance sheets if leveraged retail holdings of cryptoassets were to grow significantly.

The BoE has identified the following as the key channels through which these risks could affect financial stability:

  • Risks to systemic financial institutions
  • Risks to core financial markets
  • Risks to the ability to make payments
  • Impact on real economy balance sheets

 

  • Risks to systemic financial institutions

Although the BoE notes that direct involvement in cryptoasset and associated markets by U.K. banks has been limited to date, further involvement could increase the risk of financial losses and operational disruption.

Further, the growth of stablecoins for payments could increase the role of non-banks in the financial system, and opportunities for regulatory arbitrage could arise.

The publication notes that involvement in cryptoassets and associated markets by insurers is currently very limited.

  • Risks to core financial markets

The increasing popularity of cryptoassets amongst traditional financial institutions and institutional investors means that cryptoassets are starting to become integrated into the portfolios of institutional investors.

This means that contagion to core financial markets from cryptoassets and associated markets (which have been limited to date) may arise as they become embedded in institutional investors’ portfolios.

In the context of stablecoins, there is concern a fire sale of backing assets could disrupt the functioning of certain markets if they were to grow materially.  And in any event, the composition of stablecoin backing assets may in some cases not be sufficient to cope with mass redemptions, which could create risks for the wider financial system.

  • Risks from use for payments

The BoE sees the potential for stablecoins to play an increasingly important role in payments, especially in view of the potential for a stablecoin to launch and scale up rapidly.  Since a stablecoin has the potential to become a systemic payment system relatively quickly, the BoE believes that public confidence in money and payments could be undermined if a systemic stablecoin used for payments fails to meet its obligations.

That is, in the event that a systemic stablecoin were to fail to honour its obligations or suffer an operational failure such as a breach of privacy, this could undermine public confidence in money and payments, and in the financial system more broadly. 

  • Impact on real economy balance sheets

The BoE notes that the risk from cryptoassets to household spending and business investment is currently limited.  However, it cautions that:

“If retail holdings of cryptoassets were to grow significantly – especially if funded by debt – a sharp correction in valuations could have a negative impact on consumer spending or their ability to service other debt.”

Similarly, were U.K. businesses to significantly increase their holdings of cryptoassets, then losses from cryptoassets could create direct losses to businesses thereby reducing investment in the wider economy.

Indicators for monitoring risks from cryptoassets and DeFi

Given its concerns, the BoE has set out sample indicators that it will use to monitor the evolution of risks from cryptoassets and DeFi and assess financial stability risks.  See below the BoE’s table of indicators (source: Financial Stability in Focus: Cryptoassets and decentralised finance).

In Conclusion…

  • The BoE believes that the technology underpinning cryptoassets has the potential to reshape activity in the traditional financial sector, and could bring a number of benefits.
  • However, mitigating the financial stability risks posed by cryptoassets and DeFi is critical to ensuring that the benefits of emerging technologies can be realized sustainably.
  • The key channels through which these risks could affect financial stability include risks to systemic financial institutions, core financial markets, and payments systems.
  • There could also be an impact on real economy balance sheets if there are significant retail holdings of cryptoassets funded by debt.
  • The BoE plans to continue to monitor developments in cryptoassets and DeFi with a view to ensuring the resilience of the U.K.’s financial system to systemic risks that may arise.

 

If you would like to read more articles like this, follow DeFi Planet on Twitter, LinkedIn, Facebook, and Instagram. 

Don't miss out!

Subscribe To Our Newsletter

Receive top education news, lesson ideas, teaching tips and more!
Invalid email address
Give it a try. You can unsubscribe at any time.
Thanks for subscribing!
Share66Tweet41Share11
Previous Post

US Senate To Review Bill That Examines El Salvador’s Adoption of Bitcoin

Next Post

All You Need To Know About Web 3

Olu Omoyele

Olu Omoyele

Olu is a banking regulatory specialist who is excited by the promise of Web3 technologies for decentralized governance, operational efficiency, and trustless human interaction.

Related Posts

source: electronicpaymentsinternational.com
Business

Fiserv Teams Up with PayPal and Circle to Launch US Dollar Stablecoin FIUSD

24 June 2025
source: prospect.org
Bitcoin

Texas Becomes First U.S. State to Launch Bitcoin Reserve with $10 Million Investment

24 June 2025
source: theblock.co
News

Bill Introduced to Block U.S. President From Crypto

24 June 2025
source: finance.yahoo.com
Business

Nano Labs Launches $500M Convertible Notes Deal to Fuel BNB Treasury Strategy

24 June 2025

Featured Posts

Has Web3 Failed to Protect the Core Innovations of Crypto and DeFi?

Has Web3 Failed to Protect the Core Innovations of Crypto and DeFi?

byOlajumoke Oyaleke
15 June 2025
0

Are Green Cryptocurrencies the Future of Blockchain Sustainability?

Are Green Cryptocurrencies the Future of Blockchain Sustainability?

byOlayinka Sodiq
12 June 2025
0

Web3 Gaming’s Scaling Crisis: Why Innovation Alone Isn’t Enough

Web3 Gaming’s Scaling Crisis: Why Innovation Alone Isn’t Enough

byOlayinka Sodiq
10 June 2025
0

What Is Price Slippage in Crypto & How Can You Avoid It

What Is Price Slippage in Crypto & How Can You Avoid It

byOlayinka Sodiq
4 June 2025
0

The Rise of Decentralized Identity Solutions in DeFi

The Rise of Decentralized Identity Solutions in DeFi

byOlayinka Sodiq
20 October 2024
0

Read More

Chain of Thoughts

Are Stablecoins Bank Deposits?

Are Stablecoins Bank Deposits?

byOlu Omoyele
31 May 2025
0

...

DAOs and the Coordination of Human Endeavour

DAOs and The Coordination of Human Endeavour

byOlu Omoyele
27 April 2025
0

...

Should DeFi Be Regulated?

Should DeFi Be Regulated?

byOlu Omoyele
27 March 2025
0

...

Is Tokenization All That It’s Cracked Up To Be?

Is Tokenization All That It’s Cracked Up To Be?

byOlu Omoyele
26 February 2025
0

...

Markets Update

First XRP ETF Approved on Toronto Stock Exchange— Is This a Green Light for XRP ETF Approvals in More Countries?

22 hours ago

Your Weekend Crypto Roundup | June 2025 (Week 3)

5 days ago

Your Weekend Crypto Roundup | June 2025 (Week 2)

2 weeks ago

Your Weekend Crypto Roundup | June 2025 (Week 1)

3 weeks ago

Your Weekend Crypto Roundup | May 2025 (Week 5)

4 weeks ago

Your Weekend Crypto Roundup | May 2025 (Week 4)

1 month ago
Read More

Events

  • No events
  • Spotlight

    All about Ethereum
    All about Algorand
    All about Bitcoin
    All about Gora

    Press Releases

    Stably Introduces Stablecoin Development & Advisory Services for Institutions & Enterprises

    bychainwire
    24 June 2025
    0

    WF Holding Ltd announces entry into the digital cryptocurrency field

    bychainwire
    24 June 2025
    0

    R0AR Lists on BitMart: $1R0R Makes CEX Debut

    bychainwire
    23 June 2025
    0

    GAP 3 Partners FZCO Becomes Dubai’s First Regulated Virtual Asset Investment Advisor with Operational License from VARA

    bychainwire
    23 June 2025
    0

    Polemos Launches $PLMS Token On MEXC and Uniswap, Advancing Web3 Gaming Infrastructure

    bychainwire
    23 June 2025
    0

    Read More

    ADVERTISING

    ABOUT

    TEAM

    CAREERS

    CONTACT

    TERMS & CONDITIONS

    PRIVACY POLICY

    © Copyright 2025 DeFi Planet

    Welcome Back!

    Login to your account below

    Forgotten Password?

    Retrieve your password

    Please enter your username or email address to reset your password.

    Log In
    Please enter and activate your license key for Cryptocurrency Widgets PRO plugin for unrestricted and full access of all premium features.

    Add New Playlist

    No Result
    View All Result
    • News
      • People
      • Business
      • Crime
      • Regulation
      • Crypto
      • CBDC
    • Markets
      • Bitcoin
      • Ethereum
      • Stablecoins
      • Altcoins
      • Crypto ETFs
      • Memecoins
    • Policy
    • Articles
      • Press Releases
      • Opinion
      • Explainers
      • Guest Post
      • Sponsored
    • Directory
      • Companies
      • People
      • Products
      • Wallets
    • Multimedia
      • Videos
      • Podcasts
    • Learn
      • DeFi Basics
      • Tutorials
      • Reviews
      • Blockchain Fundamentals
    • Research
      • Case Studies
    • Explore
      • DeFi
      • Crypto Gaming
      • NFT
      • DAO
      • Metaverses
    • Jobs
    • Markets Pro
      • DeFi Planet Pro
      • Spend Crypto
      • Swap Crypto
      • Coin Prices
      • Crypto Exchanges
      • Crypto Analyzer

    © Copyright 2024 DeFi Planet   |   Terms & Conditions   |   Privacy Policy

    -
    00:00
    00:00

    Queue

    Update Required Flash plugin
    -
    00:00
    00:00