BIS: Cryptocurrencies and decentralised finance – functions and financial stability implications

This BIS paper considers cryptocurrencies and DeFi, such as smart contracts, decentralised exchanges stablecoins and new forms of central bank money.  It concludes that DeFi poses significant challenges, including new forms of information asymmetries and market inefficiencies.  It proposes tailored regulatory interventions, such as embedding rules within smart contracts and strengthening the oversight of stablecoins, to manage financial stability risks.  The report also provides a framework for prudential regulation that can mitigate risks while fostering innovation.