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FRM Part II · FRM Exam Part II · Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets

A risk analyst at a regulator is classifying digital assets. Which characteristic best distinguishes an unbacked crypto asset (such as Bitcoin) from a fiat-backed stablecoin?

An unbacked crypto asset has no underlying claim or reserve assets behind it, so its value depends only on market supply and demand and sentiment. Stablecoins, by contrast, are backed by reserves and promise redemption at par.

  1. AIt has no underlying claim on, or reserve of, financial assets, so its value rests solely on market demand and supplyCorrect
  2. BIt is issued only on permissioned ledgers controlled by a central bank
  3. CIt always pays a fixed coupon funded by a reserve pool
  4. DIt can be redeemed at par with the issuer on demand

Explanation

Unbacked crypto assets are not a claim on any issuer and have no reserve assets. Their price is driven purely by supply, demand and sentiment, unlike stablecoins that target a peg through reserves and redemption rights. The other options describe features of stablecoins or CBDCs.

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