FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A compliance officer is assessing why unbacked crypto assets pose distinct financial stability and investor protection challenges compared with a stablecoin backed by reserves. Which feature is most relevant?
Unbacked crypto assets lack any claim on an issuer or reserve, so their price has no fundamental anchor and is driven by sentiment and speculation. This produces high volatility and investor protection concerns. There is no guarantor, no redemption at par, and retail investors can hold them directly.
- ATheir value has no anchor in a claim on an issuer or reserve assets, so prices can be highly volatile and subject to sharp speculative swingsCorrect
- BThey are always issued by a single regulated entity that guarantees redemption at par
- CTheir supply is adjusted daily by a central bank to stabilise the price
- DThey can be held only by licensed financial institutions, which limits retail exposure
Explanation
Without an issuer liability or reserve, there is no fundamental anchor and no redemption right, so valuations are driven by sentiment and are volatile. The other options describe features that unbacked assets do not have, since they have no guarantor, no central bank supply management, and are widely held by retail investors.
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