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

Which feature of unbacked crypto assets most directly explains why regulators cannot rely on traditional issuer-focused regulation alone when designing a regulatory regime?

Unbacked crypto assets have no identifiable issuer or underlying claim, so authorities must regulate the intermediaries and activities, such as exchanges, custodians and wallet providers, rather than rely on issuer-based rules.

  1. AThey are backed by high-quality liquid assets
  2. BThey have no identifiable issuer or underlying claim, so activity is spread across intermediaries such as exchanges, wallets and platformsCorrect
  3. CThey are always denominated in local currency
  4. DThey pay a fixed coupon

Explanation

Unbacked assets, such as Bitcoin, lack an issuer or claim on assets, so regulation must target the intermediaries and service providers (exchanges, custodians, wallet providers) rather than an issuer. The other options are false for unbacked crypto.

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