IMF flags risks of concentration of control at exchanges in PoS networks

The Proof-of-Stake (PoS) consensus algorithm could lead to “an excessive concentration of decision-making powers in the hands of crypto exchanges and custodial-service providers, with risks to market integrity.” The IMF said this in a the study on regulation of the industry.

Experts proposed ideas for changes to the regulatory framework that could limit risks associated with digital assets.

The document states “the need for regulators to follow a technology-neutral approach, taking into account the regulatory implications of different forms of technology.”

The report also calls on the FSB to step up its activities, because this body “is capable of taking a leading role in coordinating and setting global standards to support national regulation of crypto-assets.”

Experts concluded that “digital assets have not achieved systemic importance for global financial stability, but their impact in some countries has already become noticeable.” The latter manifested in an increased correlation between cryptocurrencies and traditional financial instruments during periods of market stress.

The IMF proposed that regulators license and authorise “key centralized institutions that perform essential functions.”

Authorities were also advised to consider risks related to “volatility, market awareness, product knowledge, and understanding of crypto-use scenarios.”

Experts stressed the need for international coordination in building standards for oversight of the industry. The priority should be given to “strengthening trust, not stifling innovation,” they concluded.

In July, the Financial Stability Board announced it was working on recommendations for regulating cryptocurrencies. The corresponding document will be presented by the organization in October.

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