The digital asset industry is maturing but is not yet robust in its risk management according to the Office of the Comptroller of the Currency.
The sector of the banking industry in the US should take a cautious approach to engaging with Cryptocurrencies and seek permission in some cases.
The Office of the Comptroller of the Currency highlighted what it said were several key risks of the Cryptocurrencies in its December report.
There is a report on Semiannual Risk Perspective for Fall.
Stable coins may be unstable, the industry lacks mature risk management practices, and there is a high degree of interconnectedness.
The lack of consistent or comprehensive regulation of the space, along with the increased range of firms offering “bank-like products and services” using Cryptocurrencies and tokenized assets, raises questions regarding financial stability.
The collapse of the TerraClassicUSD (USTC) stable coin in May was given as an example of stable coins having run risk, and how asset-backed stable coins also saw minor depeg events as a result.
Stablecoin backings have evolved over time, but are still susceptible to run risk.
The practices at the firms are maturing but are not yet robust, with firms appearing unprepared for the stresses and surprises of the past year that saw losses for millions of investors, it said:
“Hacks and interferences are normal, and misrepresentation and scams are predominant throughout the business. In some cases, ownership rights, custody arrangements, and financial representations have created a great deal of confusion.”
The industry’s “interconnectedness” was revealed by the market.
According to the OCC, through a variety of opaque lending and investing arrangements.
The noted risk was due to the fact that participants may be engaging in highly leveraged trading.
In its advice to banks, the OCC said institutions should take a careful and incremental approach.
National banks were advised by the OCC to discuss their plans with their supervisor before engaging in any activities.
In the wake of the FTX bankruptcy, many exchanges have introduced proof-of-reserves so users can verify their holdings.