Stablecoins’ role in crypto and beyond: functions, risks and policy
The Plan After Ethereum Merge
Linking blockchains together is a key part of the industry. But bridges are vulnerable to hackers and confusing for consumers.
Karsten Wenzlaff, Advisor
August 26th, 2025
Karsten Wenzlaff is a Crowdfunding and Fintech Expert from Germany. He is Secretary-General of Digit[...]
Category Archives: Web3, Decentralization, DAOs
ECB Publishes Macroprudential Bulletin on Stablecoins, Climate Risk, and DeFi
ECB | Jul 25, 2022
Stablecoins’ role in crypto and beyond: functions, risks and policy
Stablecoins are in the spotlight due to their rapid growth, increasing global use cases and potential financial risk contagion channels. This article analyses the role played by stablecoins within the wider crypto-asset ecosystem and finds that some existing stablecoins are already critical to liquidity in crypto-asset markets. This could have wide-ranging implications for crypto-asset markets if a large stablecoin were to fail and could also have contagion effects if crypto-assets’ interlinkages with the traditional financial system continue rising.
See: UK Proposes Regulations That Would Recognize Stablecoins As A Form Of Payment
To date, the speed and cost of stablecoin transactions, as well as their redemption terms and conditions, have fallen short of what is required of practical means of payment in the real economy. Their growth, innovation and increasing use cases, coupled with their potential contagion channels to the financial sector, call for the urgent implementation of effective regulatory, supervisory and oversight frameworks before significant further interconnectedness with the traditional financial system occurs.
Is climate risk priced into crypto-assets?
Some crypto-assets have a significant carbon footprint and are estimated to consume a similar amount of energy each year to individual countries like Spain, the Netherlands or Austria. As the mining and expansion of these crypto-assets are fully dependent on energy supply, their valuation is particularly vulnerable to jurisdictions’ climate policies. Increasing financial exposures to such crypto-assets are therefore likely to contribute to increased transition risk for the financial system.
See: A Carbon-Negative Blockchain Making Money Beautiful
This [full] article provides an overview of the estimated carbon footprint of certain crypto-assets such as bitcoin and its causes. It also discusses the primary policy role of public authorities, which need to evaluate whether the outsized carbon footprint of certain crypto-assets undermines their green transition commitments. Finally, it analyses policy options for prudential standard-setters and the need for climate-related considerations in crypto-investors’ practices.
Decentralised finance – a new unregulated non-bank system?
Risks and Regulation of DeFi
- DeFi is subject to some of the same vulnerabilities known from traditional finance, which can be amplified by the specific features of DeFi.
- New risks inherent to DeFi, such as operational risks stemming from the underlying technology and governance risks, have risen with the expansion of DeFi.
- The lack of traditional centralised entry points for regulation and its opaque and anonymous nature pose challenges for policymakers in terms of enforcement and effective regulation and supervision.
See: A European approach to DeFi regulation
- Where regulatory gaps exist, the innovative ways in which DeFi provides financial services will require innovative ways of regulation to close regulatory loopholes. DeFi may also require the introduction of technology-based regulatory systems, so-called embedded regulation, where regulatory requirements are embedded technically into DeFi
- As vulnerabilities start to build, an internationally coordinated approach is needed to mitigate DeFi risks before they pose a risk to financial stability.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Vitalik’s Announces Next 4 Phases of Ethereum’s Development Which is Only 40% Done
CoinGape |
The Plan After Ethereum Merge
Ethereum co-founder, Vitalik Buterin, announced the next phase of Ethereum ecosystem development at the Ethereum Community Conference. Revealing that the long-awaited merge will only complete about 55% of Ethereum’s growth plan, Buterin released 4 other phases.
The Surge, Verge, Purge and Splurge phrases would allow Ethereum to process about 100,000 transactions per second.
- Surge introduces sharding to the platform, a solution that largely increases speed and scalability.
- Verge upgrades to smaller Merkle roots, which will improve storage and scalability.
- Purge makes it easier for validators to store more data and reduce their bad debt.
- Splurge streamlines the process and ensures the success of the roadmap.
If Vitalik’s prediction of 100,000 transactions per second comes true, it could revolutionize the blockchain industry. Ethereum’s current transactions per second range anywhere from 10 to 20 TPS.
See: Vitalik: Designing Principles-based Stablecoins that (may not) collapse
Vitalik’s ambitious roadmap could mean higher scalability, speed, and decentralization for Ethereum. The long-awaited Ethereum merge changes Ethereum’s consensus mechanism from Proof-Of-Work to Proof-Of-Stake. This move will reduce ETH’s energy consumption by over 99%.
One of the concerns regarding Blockchains has been about the ability of quantum computers to cause security breaches. Ethereum plans to make its platform resistant to quantum attacks in the long run.
Vitalik Buterin:
The difference between Bitcoin and Ethereum and revealed that while Bitcoin supporters believe the blockchain is 80% done, Ethereum supporters believe that their platform is only 40% done.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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U.S. Treasury Request for Comments: Crypto Competitiveness – Risks and Opportunities of Digital Assets
U.S. Department of the Treasury | Jul 12, 2022
WASHINGTON — The U.S. Department of the Treasury released a notice seeking public comment regarding potential opportunities and risks presented by developments and adoption of digital assets as part of its work under Section 5 of President Joe Biden’s digital assets Executive Order. Section 5 of Executive Order 14067, “Ensuring Responsible Development of Digital Assets,” directs Treasury, in consultation with the Secretary of Labor and other relevant agencies, to report to the President on the implications of development and adoption of digital assets and changes in financial market and payment infrastructures for United States consumers, investors, businesses.
See: Responsible Development of Digital Assets (Crypto): Decoding Biden’s Executive Order
Nellie Liang, Under Secretary of the Treasury for Domestic Finance:
For consumers, digital assets may present potential benefits, such as faster payments, as well as potential risks, including risks related to frauds and scams. The Treasury Department is seeking to benefit from the expertise of the American people and market participants by soliciting public comment as we engage in this important work.
Through this request for comment (RFC), Treasury is requesting input from the public that will inform its work in carrying out its mandate under section 5(b)(i) of the Executive Order. This RFC offers an opportunity for all interested parties to provide relevant input, data, and recommendations pertaining to the implications of developments and adoption of digital assets and changes in financial market and payment infrastructures for U.S. consumers, investors and businesses.
Read: EU agrees on landmark MiCA rules putting pressure on UK and US to regulation crypto assets too
Members of the public are encouraged to submit comments, and comments that respond to the notice will be available on www.regulations.gov.
A copy of the notice is available at Federal Register :: Ensuring Responsible Development of Digital Assets; Request for Comment.
View the original release --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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CPMI and IOSCO publish final guidance for stablecoins
BIS | Jul 13, 2022
- CPMI and IOSCO issue final guidance on stablecoin arrangements confirming that the Principles for Financial Market Infrastructures apply to systemically important stablecoin arrangements that transfer stablecoins.
- Guidance is a major step forward in applying "same risk, same regulation" to stablecoins, and extending the international standards for payment, clearing and settlement systems to cover systemically important stablecoin arrangements.
- CPMI and IOSCO will continue to examine regulatory, supervisory and oversight issues associated with stablecoin arrangements and coordinate with other standard-setting bodies.
The Bank for International Settlements' Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) today published final guidance confirming that stablecoin arrangements should observe international standards for payment, clearing and settlement systems.
See: UK Proposes Regulations That Would Recognize Stablecoins As A Form Of Payment
The final guidance, which follows October 2021's proposals for consultation, reconfirms that if a stablecoin arrangement performs a transfer function and is determined by authorities to be systemically important, the stablecoin arrangement as a whole would be expected to observe all relevant principles of the Principles for Financial Market Infrastructures (PFMI).
This guidance is a major step forward in applying "same risk, same regulation" to systemically important stablecoin arrangements that are used for payments. It is also a key contribution to the G20 cross-border payments programme and supports the work of the Financial Stability Board (FSB) in this area.
Sir Jon Cunliffe, Chair of the CPMI and Deputy Governor for Financial Stability at the Bank of England:
Recent developments in the cryptoasset market have again brought urgency for authorities to address the potential risks posed by cryptoassets, including stablecoins more broadly. The recent market disruptions, while costly for many, were not systemic events. But they underline the speed with which confidence can be eroded and how volatile cryptoassets can be. Such events could become systemic in the future, especially given the strong growth in these markets and the increasing linkages between cryptoassets and with traditional finance.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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What’s the latest surrounding USDT (Tether) risks about?
Guest Post | Jul 21, 2022
Stablecoins are an extremely interesting type of cryptocurrency which is backed up by a reserve asset like the USD was before on August 15, 1971, when President Richard Nixon announced that the United States would no longer convert dollars to gold at a fixed value, thus completely abandoning the gold standard.
Buckle up, this is about to get difficult and complex. However, here is a more easy to read digestible and in-depth article about how the entire market can collapse because of Tether any moment.
So stablecoins are like the old USD-backed gold? Well yes and no, Stablecoins are mainly backed by fiat currency, which is decipetable to inflation. If stablecoins were only backed up by gold which is something limited in supply, then, we would have the “old” USD back. So, every dollar you buy USDT with is a virtual dollar lent to you but over there in their office they still hold your dollar until you sell the USDT again. Now we’ve all seen what can happen with extreme liquidity crunches in bear market cycles which forced crypto juggernauts Voyageur and Celsius into bankruptcy.
Has Tether learned its lesson and is it risking the same fate? USDT is founded by a Dutchman (Jan Ludovicus van der Velde) and the company behind it run by a vast team in which the executives are reportedly being currently investigated by the Department of Justice over a criminal probe into bank fraud.
Legally, a stablecoin can back up your virtual dollar with a debt loan to another company or back up your virtual dollar by things like gold. They are legally allowed to do that. But what if Tether is not actually backing up every dollar in their office? Well, this is where three-party audits come in. Every quarter, the company behind any stable coin needs to let an external audit professional verify if every single dollar lent out virtually is really backed up.
See: CFTC fines Tether US$41M for misleading claims about currency backing
However, some reports in the past showed us that Tether only had 70% of their stablecoin backed up. Right now, audit reports show us that 100% of all assets are nicely backed up in a 1:1 ratio, but also the report shows that only a mere 10% of their entire supply of Tether is backed up by actual Fiat money or currency. Over 50% of their “backing” are short-term loans they lent out to companies in China which are getting into more and more debt without the hope of recovering anytime soon. Stablecoins like USDC or DAI carry out monthly transparent audits. These stablecoins are founded by the company “Circle” and the exchange “Coinbase.” More and more people are turning to these more trustworthy stablecoins amidst the controversy surrounding USDT.
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Overview of Some Popular Layer 1 Blockchains
Crypto Pragmatist | Jack Niewold | Jul 20, 2022
Bitcoin, Ethereum, Solana, Avalanche–these are some of the best known ‘Layer One’ blockchains that exist in the crypto space. But what makes these Layer One protocols (L1s) different from each other?
Bitcoin - Most Resilient Blockchain
Bitcoin is an apocalypse-proof blockchain. It’s designed to be a project that just works perfectly as intended: a censor-proof, permissionless ledger, nothing more. What are the features that keep it anti-fragile in a world that tends to over complicate things?
- No smart contracts
- Proof-of-work consensus algorithm
- Nearly no developer activity
- No hard forks
Bitcoin’s beauty is, in large part, due to its antifragility. Those who desire for Bitcoin to become greater or different largely seem to miss the point.
Ethereum: The Best-Executing Blockchain (for now)
A healthy view on Ethereum is “the blockchain that’s managed to execute most successfully, so far.” While some see it as the ‘most decentralized’ blockchain, which is probably fair, it hasn’t always been that way thanks to events like the DAO hack. Now, Ethereum maxis would make fun of a similar event on another chain.
See: Jack Dorsey’s is Building an Extra Decentralized ‘Web5’ on Bitcoin with Digital Identity Layer
Despite a lot of Ethereum users recently becoming outspoken Ethereum ‘maximalists,’ Ethereum has really historically been a moderate blockchain. They’ve never been slow to ship, as the first smart contract platform to come on line, but they’ve simultaneously never damaged their blockchain beyond repair.
More proof of their expert in managing execution is:
- Their pending transition from proof-of-work to proof-of-stake
- A strong scaling plan
- Ability to progressively decentralize over time.
- Their focus on bridge security before it was widely seen as a problem
Solana: The Blockchain that Questions Assumptions
Solana is an interesting blockchain to me because they’ve thrown some of Ethereum’s pragmatic assumptions out the window. They’re the only chain to use the ‘proof-of-history’ consensus mechanism, and their security approach comes down to ‘we just need one copy of the ledger to survive.’ Their scaling goals are much more related to user and developer adoption than to scaling the blockchain itself.
Read: Osom partners with Solana to launch OV1, a blockchain-focused smartphone
I think this mental model is exemplified with Solana’s recent announcement around their Web3 native phone. This phone has a trustless hardware component that allows users to isolate their wallet private key from the operating system, which Solana sees as a vulnerable attack vector. The fact that Ethereum is worried about bridge security while Solana works on user-level security is a clear example of how these blockchains differ in outright assumptions.
Cosmos: An Out-of-the-Box Blockchain
Cosmos is a project that makes it incredibly easy to set up a new blockchain. They create an open-source set of rules to operate these networks, but ultimately leave the governance of the blockchain up to its creators, leaving validation, voting, and architecture questions up in the air.
Another way to think about the Cosmos ecosystem is as a parallel ‘states rights’ blockchain to Polkadot’s ‘federalist’ architecture–Cosmos gives you the framework to start your own blockchain (Terra Luna, Osmosis, Juno, and Evmos all being examples of this), then lets the chains communicate with each other, while staying out of the way.
See: Crypto Bridges are Integral to Blockchain Adoption but Vulnerable to Attack
This has some drawbacks, but it’s been an incredibly popular platform as it gives well-funded teams a way to simply and quickly roll out their own L1 networks. Lately it’s been touted as a solution for ‘app-chains,’ or applications that can be benefitted by having their own chains: dYdX will be launching shortly on Cosmos.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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Crypto Bridges are Integral to Blockchain Adoption but Vulnerable to Attack
Protocol | Tomio Geron | Jul 18, 2022
Linking blockchains together is a key part of the industry. But bridges are vulnerable to hackers and confusing for consumers.
One of the challenges for the crypto industry is how many blockchains there are and how complex it is to move across them. This has led to the growth of bridges for people to send tokens across chains. But these bridging tools have come under attack by hackers, leading to major losses.
Many in the industry believe it’s inevitable that there will be multiple blockchains that develop, each emphasizing different strengths such as gaming, trading, NFTs, mobile or payments.
See: Why Blockchain analytics are catching Washington’s attention
Because crypto has become a multichain industry, bridges have become a key part of the infrastructure. Attacks on them can have “cascading effects” across chains, as Chainalysis researchers recently put it. Some of the largest DeFi hacks to date have involved bridges.
Hacking bridges
- There are two main kinds of hacks on bridges: code attacks, which exploit vulnerabilities in smart contracts, and attacks on the design of a network, often accomplished through social engineering.
- In one smart-contract-related incident, hackers exploited a security problem in the Wormhole bridge’s code to make off with $325 million. Wormhole bridges blockchains like Ethereum, Solana and Polygon, enabling people to deposit tokens from one chain and get the equivalent on a different chain.
- In the incident, a hacker minted 120,000 wrapped ether, or WETH, on the Solana blockchain without putting in the equivalent on the Ethereum side.
- The recent $100 million hack of Harmony’s Horizon Bridge was apparently the result of social engineering to obtain the required electronic signatures to authorize a transaction.
- In Axie Infinity’s Ronin bridge, a hacker took control of five of the nine validator nodes that handle transactions. Four of those five nodes were controlled by Axie developer Sky Mavis, a flaw in its design, Khurana said. Social engineering allowed hackers to take control of those four nodes: An Axie engineer applied for a fake job on LinkedIn and opened a fake job offer document that contained spyware. A fifth node was hacked through a third-party validator managed by the Axie DAO.
See: Bain Capital Launches Dedicated Crypto Team – Sights on DAO Services
Until bridging across different chains becomes easier, widespread crypto adoption will be hindered.
Continue to the full article --> here
The National Crowdfunding & Fintech Association (NCFA Canada) is a financial innovation ecosystem that provides education, market intelligence, industry stewardship, networking and funding opportunities and services to thousands of community members and works closely with industry, government, partners and affiliates to create a vibrant and innovative fintech and funding industry in Canada. Decentralized and distributed, NCFA is engaged with global stakeholders and helps incubate projects and investment in fintech, alternative finance, crowdfunding, peer-to-peer finance, payments, digital assets and tokens, blockchain, cryptocurrency, regtech, and insurtech sectors. Join Canada's Fintech & Funding Community today FREE! Or become a contributing member and get perks. For more information, please visit: www.ncfacanada.org
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