Connected Crypto
Crypto markets have been brutal this year, with even the biggest cryptos taking massive tumbles. But beyond the price action, the technological and financial integration of crypto into the real world has seen major news. From the adoption of NFTs to DAOs, and more, blockchain is seeing some interesting use cases. Most recently, MIT leveraged blockchain technology to issue digital diplomas to graduates free of charge. One thing all of these technologies hold in common is their decentralized ideology. But with big banks getting involved, this picture starts to become a bit hazier. Some governments have taken issue with the overlap between the two, the most recent of which was the European Union.
Specifically, there are concerns about how crypto ties to banks and asset managers could pose a risk to financial stability. Looking into their concerns, the ECB said yesterday that they’ve undertaken “a deep dive into crypto asset leverage and crypto lending” and found evidence that these activities were becoming more risky, complex, and interconnected with traditional institutions. Some examples of the risks the ECB are worried about are loans offered by crypto exchanges, who are offering increases in exposure up to 125x the initial investment. Another concern are decentralized exchanges, or DEX’s. These products are stables of DeFi and are crypto centric softwares offering financial services using smart contracts, instead of traditional intermediaries like banks.
What do you think of the ECB’s concerns and are they valid?
I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.
