ECB chief calls for oversight of crypto lending

The President of the European Central Bank (ECB), Christine Lagarde, said there is a need to regulate the crypto-lending sector.

The President of the ECB calls for a MiCA 2 pic.twitter.com/umywn7k99g

— Aurore Lalucq (@AuroreLalucq) June 21, 2022

Speaking to the European Parliament, Lagarde highlighted the growing activity of crypto-lending platforms. In her view, such a trend warrants additional regulatory effort by authorities.

She referred to законопроект о регулировании криптовалют MiCA, adopted by ECON in March 2022. In her view, given the current events in the industry, there is a need for ‘MiCA II’ to oversee staking and lending in digital assets.

“Innovations in these uncharted and untested territories expose consumers to risk, where lack of regulation often leads to fraud, bogus valuation claims, and, very often, speculation,” Lagarde said.

She added that decentralized finance poses a “real risk to financial stability”. Consequently, the sector should fall within the regulatory perimeter, Lagarde concluded.

Lagarde’s remarks came amid adverse developments in the industry. On June 13, the crypto-lending platform Celsius приостановила вывод средств, halted withdrawals, exchanges and transfers between accounts due to extreme market conditions.

Experts say the firm’s decision may have been driven by losses from using high-risk DeFi instruments, particularly synthetic assets backed by stETH from Lido and Wrapped Bitcoin.

Subsequently, there were rumors about the insolvency of hedge fund Three Arrows Capital (3AC), which actively used protocols such as Aave.

One of the largest crypto lenders and asset managers in the Asia-Pacific region — Babel Finance — said it faced a liquidity shortfall due to market volatility and the suspension of payments and withdrawals from its own products.

Earlier in May, Lagarde called for regulation of digital assets Лагард призвала к регулированию цифровых активов, noting that they are worth nothing.

Earlier, Lagarde said that all cryptocurrencies and stablecoins meet the definition of speculative assets and that recognizing them as currencies is inappropriate.

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