FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A policy team compares three options for unbacked crypto: Ban, Contain, Regulate. They observe that a jurisdiction's strategy, if it adopts regulation, still faces a core challenge in that unbacked crypto assets lack an issuer and underlying claim. Which implication follows for a regulate-based framework?
Because unbacked crypto assets have no issuer or underlying claim, a regulatory framework has to focus on intermediaries and service providers such as exchanges, custodians, and wallet providers. Issuer-level obligations or deposit-style protections cannot be applied.
- ARegulation can target the asset's issuer, as with securities, to guarantee redemption
- BRegulation must focus mainly on intermediaries and service providers such as exchanges, custodians, and wallet providers, because there is no issuer to hold accountableCorrect
- CRegulation is unnecessary because the absence of an issuer eliminates credit risk and market risk
- DRegulation should treat the assets as deposits covered by deposit insurance
Explanation
With no issuer or claim, rules cannot be applied at the issuer level. Authorities therefore regulate the gateways and intermediaries, such as exchanges, brokers, custodians and wallet providers. The absence of an issuer does not remove market risk, and deposit insurance does not apply.
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