Top Fed official warns of serious weaknesses in the crypto industry

The deputy chair of the Federal Reserve, Lael Brainard, said that the latest crypto volatility had revealed “serious weaknesses” in an industry that requires stricter regulation.

At a conference of the Bank of England in London on Friday,

Brainard said that Krypto was not yet "so big or closer to traditional financial system" to present a systemic risk, but known regulatory concerns.

"Although the crypto financial system is advertised as a fundamental break with traditional finance, it proves to be susceptible to the same risks that are too well known from traditional finance, such as leverage, handling, opacity as well as runtime and liquidity transformation," said Brainard.

"While we are working on making our agenda for financial stability future-proof, it is important to ensure that the regulatory perimeter includes crypto financing."

The crypto markets have been relentlessly under pressure in the past few weeks, with several key players, including the crypto hedge fund Three Arrows, collapsing as a result of the break-in of the markets. Since the all -time high in November, popular tokens such as Bitcoin and Ether have lost around 70 percent of their value.

In the course of this market crash, Brainard questioned the often arguments for cryptocurrencies such as Bitcoin, which act as protection against inflation.

"In contrast to claims that crypto-assets are an inflation protection or an incorporated investment class, crypto-assets have dropped in value and have proven to be severely correlated with riskier stocks and more general with risk.

Brainard's speech also concentrated on the stablecoin industry, a key factor for the general health of the cryptom market on the whole. Stablecoin should track real currencies and ensure stability on the cryptom market by offering dealers a quick way to exchange digital tokens in dollars.

"It is crucial that stable coins that pretend to be redeemable in the nominal value in Fiat currency if necessary are subject to the types of supervisory regulations that limit the risk of runs," she added.

Brainard's comments on Stablecoins follow the collapse of the once popular StableCoin Terrausd and sister token Luna, a crash that destroyed billions of dollars for investors. Terra relied on computer algorithms and market demand to keep its value constant.

"The Terra crash reminds us of how quickly an asset that pretends to maintain a stable value in relation to the Fiat currency, a run.

Brainard also pointed out to Tether-the largest stable coin in the industry-and the considerable drainage pressure that the StableCoin provider was exposed in May. "As the great recent drain from the largest stable coin has shown, stable coins that are bound to the Fiat currency are very susceptible to Runs," she added.

In addition, Brainard's speech aimed at cryptocurrency companies that could reflect the activities of traditional financial system without equivalent regulatory standards.

she found that many crypto trade and credit platforms did not have a comparable regulation, but also "combine activities that have to be separated from traditional financial markets".

"It is important to tackle non -compliance and possibly existing gaps," she said.