President of the European Central Bank, Christine Lagarde, speaking with the European Parliament on Monday, has called on Lawmakers to start working on fresh crypto regulations to cover DeFi and Bitcoin as she fears that crypto will eventually grow to the point where it becomes a financial stability risk.
While congratulating the parliament on its work so far, Lagarde noted that there were still gaps to be filled by regulations that the regulatory framework that the parliament is currently working on is yet to cover, namely decentralized lending and staking protocols and Bitcoin. According to Lagarde, these facets of the crypto space posed a significant risk to financial stability.
The ECB chief stated that this risk would only grow as crypto markets become more intertwined with traditional finance and the economy. To this end, Lagarde suggested that the European Parliament work on a follow-up to the current regulation termed Markets in Crypto Assets (MiCA). Lagarde proposes that the follow-up, which she termed MiCA 2.0, cover these decentralized markets.
“MiCA 2.0 would have a larger scope & would regulate in depth some of those innovations in these unchartered territories that put consumers at risk & where the lack of regulation is covering fraud, completely illegitimate claims about valuations, speculation & criminal dealings,” said Lagarde speaking on the direction of the proposed legislation.
It is worth noting that Lagarde is not a fan of the asset class. The ECB chief had earlier stated her belief that crypto-assets have no value and are based on nothing.
Lagarde’s latest statements come as the troubles of various DeFi lending and staking platforms grab headlines. For example, in recent weeks, Celsius and Babel have had to halt withdrawals on their platforms as they deal with insolvency concerns.
Notably, Europe’s MiCA legislation is already in its Trilogue stages. While regulators hoped the legislation would be adopted by the end of the year, Lagarde, while speaking with the parliament, said it was her understanding that the crypto framework would become enforceable in 2024.
MiCA, now possibly MiCA 1.0, has undergone several amendments since its convention in 2020. However, the most controversial moment for the framework was the near ban on Bitcoin and other proof-of-work digital assets in March.