Firstly, any shocks to the crypto ecosystem may spread to the traditional financial system, given that the two have become more strongly interconnected, the Monetary Authority of Singapore warned.
In doing so, Temasek acknowledging that its belief in FTX's former chief executive officer Sam Bankman-Fried “would appear to have been misplaced”. "While some of these vulnerabilities are similar to those in the traditional financial system, others stem from the use of new technologies, novel structures of organisation, or modes of financial intermediation that hew to the hallmarks of the crypto ecosystem," said MAS.MAS had considered three sub-categories in the crypto asset space: Stablecoins, decentralised finance and other crypto assets.
The proper functioning of the crypto ecosystem depends on the robustness of the underlying blockchain infrastructure. The open source nature of the technologies used in the crypto ecosystem also makes it more likely to be exploited than the technologies used in traditional financeThe absence of a"fundamental value: for these crypto-assets implies that much trading is"speculative in nature and highly sentiment-driven", and this leaves crypto-asset markets more susceptible to large swings in prices than more conventional types of assets.
"The changes could take the form of new modes of financial intermediation, a displacement of incumbent mediums of exchange and other financial services providers, which could accentuate the volatility of cross-border capital flows," said MAS.