ECB head calls for separate framework to regulate crypto lending

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A week after the major American crypto lending platform Celsius had to freeze the withdrawal option for its users, European Central Bank (ECB) president Christine Lagarde voiced her conviction on the necessity of tighter scrutiny over this part of the crypto market.

During a testimony before the European Parliament on Monday, Lagarde expressed her thoughts not only about the looming inflation in Europe and around the globe but also about the increasing activities of crypto-asset staking and lending. In Lagarde’s opinion, this trend demands additional regulatory efforts from the European Union. Referring to the major regulatory package making its way through the legislative routine, Markets in Crypto-Assets (MiCA), she even coined the term “MiCA II”:

“MiCA II should regulate the activities of crypto-asset staking and lending, which are definitely increasing.”

Lagarde warned about the risks, posed by the lack of regulation in this segment of the market:

“Innovations in these unexplored and uncharted territories put consumers at risk, where the lack of regulation is often covering fraud, completely illegitimate claims about valuation, and very often speculation as well as criminal dealings.”

The official made a separate mention of decentralized finance (DeFi), which, from her point of view, also poses a “real risk to financial stability” and thus should be covered by the separate regulatory framework.

A procedure, which caught the ECB head’s attention, staking is available on a proof-of-stake (PoS) protocol and allows multiple crypto token holders to pool their tokens, thereby granting the staking pool operator a validator status and rewarding all stakeholders with tokens for their computational resources’ contributions.

Lagarde is famous for her overt anti-crypto position and numerous claims that cryptocurrencies are “worth nothing” and “based on nothing.” Meanwhile, the European Commission announced that it’s preparing a digital euro proposal for 2023. The ECB is expected to have a prototype by the end of 2023, and if everything goes well, it may be issued in 2025.