India likely to ban unbacked crypto assets, stablecoins and DeFi, says RBI

business-standard.com:

Under India's G20 presidency, one of the priorities is to develop a framework for global regulation, including the possibility of prohibition of unbacked crypto assets, stablecoins and DeFi (Decentralised Finance), the Reserve Bank of India (RBI) has stressed.

In its latest Financial Stability Report (FSB), the central bank said that crypto assets are highly volatile.

"The collapse and bankruptcy of the crypto exchange FTX and subsequent sell-off in the crypto assets market have highlighted the inherent vulnerabilities in the crypto ecosystem," according to the report.

Recently, Binance, the largest crypto exchange has also prohibited withdrawals of stablecoins on its platform. The implosion of FTX was preceded by failure of TerraUSD/Luna, an algorithmic stablecoin, a run on Celsius, a crypto lender, and bankruptcy of Three Arrows Capital, a cryptocurrency hedge fund.

The report's recommendations seek to promote international consistency on regulatory and supervisory approaches, which are grounded in the principle of "same activity, same risk, same regulation" approach.

"The framework proposes that authorities should have appropriate powers, tools and resources to regulate, supervise, and oversee crypto assets activities and markets, both domestically and internationally, proportionate to the financial stability risk they pose," the RBI report mentioned.

In addition, crypto assets also exhibit high correlations with equities.

"Furthermore, contrary to claims that they are an alternative source of value due to inflation hedging benefits, crypto assets value has fallen even as inflation rose," said the RBI report.

Although crypto assets market remains volatile, there have not yet been any spillovers onto the stability of