The Bank for International Settlements (BIS) has issued a fresh warning about the risks posed by the growing adoption of cryptocurrencies and decentralized finance (DeFi), noting their potential to disrupt traditional finance and deepen economic inequality.
In a report released on April 15, the BIS emphasized that the expansion of crypto markets and the influx of capital into DeFi have “reached a critical mass,” adding that investor protection has become a “significant concern for regulators.”
With the crypto sector’s size now impossible to ignore, the BIS cautioned that authorities should be paying attention to the “stability of crypto over and above the role it may have for TradFi and the real economy.” The report singled out stablecoins as a key area of focus, stating they have “become the means through which participants transfer value within crypto.”
To address potential vulnerabilities, the BIS is calling for targeted regulation of stablecoins. It recommends the introduction of stability measures and reserve asset requirements to ensure that stablecoins can be redeemed for U.S. dollars during “stressed market conditions.”
This warning comes on the heels of recent legislative moves in the United States aimed at strengthening oversight of the crypto sector. On April 2, the U.S. House Financial Services Committee passed the STABLE Act—short for Stablecoin Transparency and Accountability for a Better Ledger Economy—by a 32–17 vote. The bill is designed to establish a comprehensive regulatory framework for dollar-backed stablecoins, prioritizing both transparency and consumer safeguards.
Earlier, on March 13, the Senate Banking Committee approved the GENIUS Act (Guiding and Establishing National Innovation for US Stablecoins) by a vote of 18–6. The proposed legislation outlines collateralization requirements and mandates full compliance with Anti-Money Laundering (AML) laws for all stablecoin issuers.
Beyond financial stability, the BIS report also highlights social risks tied to crypto investments—chiefly the potential for worsening income inequality. Citing the collapse of FTX in 2022, the BIS noted a troubling pattern in investor behavior.
“As prices tumbled in 2022, users actually traded more,” the report stated. “Most disturbingly, large bitcoin holders (‘whales’) were selling as ordinary retail investors (‘krill’) were buying.” The BIS added, “This implies that the crypto market, which is often presented as an opportunity for inclusive growth and financial stability, can be a means for redistributing wealth from the poorer to the wealthier.”
In its conclusion, the BIS drew parallels between decentralized and traditional finance, noting that both are shaped by similar economic forces.
However, DeFi’s “distinctive features,” such as “smart contract and composability,” present new regulatory challenges that require proactive measures to “safeguard financial stability, while fostering innovation.”
