Investing.com – Several stormy recommendations have just been released that could potentially break up Coinbase (NASDAQ:) and other cryptocurrency exchanges, as part of crypto reforms proposed by the Global Financial Stability Board.
An influential global financial watchdog has made a series of sweeping recommendations for regulating digital assets, including provisions that could lead to a collapse in digital assets. Coinbase Global and other major crypto players.
In a letter to G-20 finance ministers and central bank governors on Tuesday, Claes Knott – the head of the Financial Stability Board (FSB) and head of the Netherlands’ central bank – warned of the risks crypto poses to investors and market confidence.
“The current crypto winter has reinforced our assessment of the current structural vulnerabilities in these markets,” said Klaas Knott, the head of the Financial Stability Board (FSB), so concerns about the risks they pose to financial stability are likely to come back to the fore sooner rather than later.
The Federal Security Council outlined recommendations for regulation of digital assets by financial authorities in a series of reports for consultation published on Tuesday ahead of this week’s meeting of G20 officials.
The FSB itself has no executive authority, but is a major player in global finance – mandated by the G-20 and funded by the Bank for International Settlements (BIS), a “bank of central banks” owned by the federal government.
In one report, the FSB highlighted the interconnectedness of the world, including how trading platforms often provide vertically integrated services such as trading, settlement, clearing, brokerage and custody services.
Threatening the main players
“Different digital asset activities are often bundled together into one entity, sometimes in non-compliance with existing regulations,” the Financial Stability Board said.
The Financial Stability Board (FSB) added, “This may require the articulation and segregation of specific functions and activities in order to fully address the risks arising from the complex effects of different functions.”
Experts say this would threaten established crypto players, such as cryptocurrency exchanges, brokers, and exchanges such as Coinbase.
Market experts add that there are many major entities in the crypto market that operate in more than one activity between brokerage, lending and trading.
If these recommendations are taken into account, it could lead to decisions that would dismantle major companies such as CoinPass and Binance America that operate in more than one crypto activity.
In another stablecoin recommendation, the Federal Security Bureau (FSB) recommended that these tokens, which are usually pegged to a fiat currency like the American one, do not rely on financial engineering such as arbitrage or algorithms to maintain their peg.
Where stablecoins stand at the heart of the digital currency economy, they form the foundations of liquidity in trading and lending.
The report noted that the collapse of the stablecoin – which relied on algorithms and arbitrage – earlier this year contributed to significant turmoil in the cryptocurrency markets.
The FSB said: “The globally used stablecoin should not rely on arbitrage activities to maintain a stable value at all times, and should not derive its value from algorithms.”
“The collapse of the Terra Algorithmic Coin (UST) highlights the high risk of loss and the potential fragility of stablecoins that lack proper and effective stability mechanisms,” said the Center for Global Stability.