FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A regulator is mapping the market structure of the crypto ecosystem. Which statement best characterises the role of centralised crypto exchanges and intermediaries in the market for unbacked crypto assets?
Centralised crypto platforms often bundle trading, custody, lending and brokerage in one entity, unlike traditional finance where these roles are separated. This concentrates conflicts of interest, commingling and operational risk. They do hold customer assets and offer leverage, and trades do not settle on a central bank ledger.
- AThey often combine trading, custody, lending and brokerage under one entity, creating concentrated conflicts of interest and operational risksCorrect
- BThey are strictly limited to matching orders and never hold customer assets
- CThey are prohibited from offering leverage because unbacked assets cannot be pledged as collateral
- DThey eliminate counterparty risk because all trades settle on a central bank ledger
Explanation
Large crypto platforms commonly bundle functions that are separated in traditional finance, such as exchange, broker, custodian and lender. This creates conflicts of interest, commingling risk and operational vulnerabilities. The other options are wrong because platforms do hold customer assets, offer leverage, and do not settle on a central bank ledger.
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