YORK—A new report is sharing concerns over the digital asset ecosystem becoming more interconnected with the traditional financial system. The report was released by the Federal Reserve Bank of New York.
In “The Financial Stability Implications of Digital Assets” report, the authors said the digital asset ecosystem has many of the same vulnerabilities as the traditional system but has fewer regulations while also introducing new risks, Pymnts.com noted.
Among the risks are automated transactions and decentralized governance of some platforms, which together make it difficult to intervene during instability. In addition, stablecoins may cause disruptions in the traditional financial markets, the Federal Reserve Bank of New York stated.
“At present, the potential spillovers from runs on stablecoins that are backed by money market instruments represent the most salient financial stability risk,” the authors wrote. “Should the digital financial system become more interconnected with the traditional system or expand its provision of financial services, financial stability risks could quickly become material.”
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