FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets
A risk analyst at a bank is classifying digital assets for an internal policy. Which asset would be classed as an unbacked crypto asset, as the term is used in the IMF's discussion of regulating the crypto ecosystem?
A decentralized token whose value depends on market sentiment, with no underlying claim or reserve, is unbacked. Unbacked crypto assets have no issuer liability or asset backing. Stablecoins with reserves, tokenized deposits and central bank digital currencies all represent claims on an identifiable issuer or asset.
- AA fiat-referenced stablecoin fully backed by cash and short-term government bills
- BA tokenized bank deposit issued by a regulated bank
- CA decentralized token whose value rests on market sentiment, with no underlying claim or reserve assetCorrect
- DA central bank digital currency issued by a monetary authority
Explanation
Unbacked crypto assets, such as Bitcoin and similar tokens, have no issuer liability and no reserve assets behind them. Their value depends on supply, demand and sentiment. Reserve-backed stablecoins, tokenized deposits and CBDCs each represent a claim on an identifiable issuer or asset.
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