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Decentralized finance yet to pose ‘meaningful risk’ to stability — EU regulator

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The European Securities and Markets Authority has released a report on the benefits and risks of DeFi, stating that it poses no meaningful financial stability risks at its current size.

Decentralized finance is yet to pose a meaningful risk to overall financial stability but does require monitoring, according to the European Union’s financial markets and securities regulator.Decentralized Finance in the EU: Developments and Risks

“Crypto-assets markets, including DeFi, do not represent meaningful risks to financial stability at this point, mainly because of their relatively small size and limited contagion channels between crypto and traditional financial markets.”total value locked is a mere $40 billion, according to DefiLlama. Comparatively, the total assets of financial institutions in the EU amounted to around $90 trillion in 2021, according to the European Commission.

It also highlighted that although investors’ exposure to DeFi remains small, there are still serious risks to investor protection due to the"highly speculative nature of many DeFi arrangements, important operational and security vulnerabilities, and the lack of a clearly identified responsible party."

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