A keynote speech by Fabio Panetta, a member of the Executive Board of the European Central Bank, concentrated solely on describing what in his view are the fundamental flaws to be found in cryptocurrencies
The first perceived flaw is that crypto-assets do not perform any useful function for society. Panetta states that they aren’t used for payments, they don’t fund consumption, they don’t help fuel production, and they don’t help to combat climate change.
He complains that cryptocurrencies aren’t backed, they are volatile, and they are unstable. He says that they are “notional instruments” and have no value for investors that buy them.
Panetta states that there is no compensation for investors and highlights the significant losses from various collapses. He says that there are no insurance schemes and there is little protection from cyber risks.
Panetta posits that stablecoins are stable in name only. He says that they are supposed to provide stability by having their value tied to a portfolio of assets.
There then follows a section on algorithmic stablecoins, and of course, the TerraUSD algorithmic stablecoin is highlighted.
He points the finger at Defi, where he says the procyclical effects are amplified by the over-collateralization common in Defi. He says that the flaws are magnified by inadequate governance, and insufficient transparency and disclosure.
Panetta then goes on to basically say that crypto will only endure as long as investors are looking for a place to gamble. In order to minimize this he recommends that they are regulated and that they do not receive “preferential treatment”.
He says that “regulators must walk a tightrope” and avoid allowing unsound cryptos from “socializing the risks through bailouts”. He welcomes the EU’s incoming MiCA regulations and states that it is crucial they enter into force rapidly.
The rest of the review lays out the case for central bank digital currencies (CBDCs), which in his view will be the only “anchor of stability”.
He concludes with a call for urgent global regulation in order to protect consumers, and reduce the contagion risk of stablecoins, and signs off with the following paragraph.
