Regulators will define the shape of the evolving global crypto ecosystem, report says
Evolving regulations will define the future shape of the crypto ecosystem over the next two years, says S&P Global Ratings in a new report (see “Regulating Crypto: The Bid To Frame, Tame, Or Game The Ecosystem”).
“The current market downturn and related collapse of some projects and crypto assets have prompted significant losses, exposed idiosyncratic risks and vulnerabilities within protocols, and highlighted systemic concerns within the crypto landscape. As a result, it has sharpened policymakers’ awareness of the need to regulate the crypto and decentralized finance (DeFi) ecosystem,” said Alexandre Birry, a senior analyst at S&P Global Ratings.
Reduced asset prices and activity may offer only a temporary reprieve from the urgency of the regulatory task, the report says. Key priorities for policymakers will likely include consumer protection, financial stability, market conduct, and anti-money laundering rules, while also striking a balance that enables and fosters continued innovation in the financial markets.
The policy stance will vary, and legislation may move at different speeds and in different directions between regions. The significant losses caused by the recent rout appear to have toughened the regulatory resolve of even some of the more crypto-friendly authorities. “But as the market thaws, we believe that there will continue to be key differences between policymakers,” continues Alexandre Birry. And policymakers will have to contend with a difficult macro and geopolitical context, as well as some unique features attendant to this emerging ecosystem.
Despite the challenges it faces, regulation will be key in defining how this ecosystem evolves, how far it goes, and how DeFi interacts with–and possibly transforms–the traditional finance world.
The extensive report explores the regulatory landscape of the emerging digital ecosystem, focusing specifically on the challenges and outlooks for certain digital assets and activities, and for a few key jurisdictions.
The first section focuses on various digital assets and activities, while the second section explores the regulatory outlook for some key jurisdictions:
Crypto Assets And Activities
| • | Stablecoins | How To Curb Risks Before They Become Systemic |
| • | Digital Securities | Defining New Markets |
| • | Crypto Tokens | Right-Sizing The Rules |
| • | Decentralized Lending | Regulation Will Require Some Compromise |
| • | Nonfungible Tokens | Diverging Intent May Drive Diverging Treatment |
| • | Crypto Asset Exchanges | One Size Does Not Fit All |
Jurisdictional Snapshots
| • | China | The Outright Ban Looks Set To Stay |
| • | European Union | Upcoming Rulebook Will Likely Foster Greater Trust In Crypto Assets |
| • | U.K. | Will Regulation Walk The Crypto Talk? |
| • | U.S. Regulation | The Policy Debate Is Heating Up |
| • | Crypto-Friendly Countries | Regulatory Approaches Vary, With Some Common Ground |