On 4 October 2022, the European Securities and Markets Authority (ESMA) released a publication which covers crypto-assets and the risks they bring to financial stability. The report highlights two types of risks for financial markets associated with crypto-assets, namely traditional financial risks, which are similar to those found in established financial markets, and those risks native to crypto-assets arising from the unique properties of distributed ledger technology (DLT). It stresses that crypto-assets have no tangible value, contrary to traditional securities, and are therefore subject to increased volatility. In addition, the pseudonymity that prevails in crypto-asset markets makes it virtually impossible to assess the creditworthiness or aggregate exposures of participants. The report also questions the supposed stability of stablecoins. Importantly, while highlighting several risks associated with crypto-assets, the report concludes that the risks of external contagion to the traditional financial system remain low. As a final note, the report stresses the importance of a global regulatory response to protect consumers and the financial system, as crypto-assets are borderless and global in nature.
