Two major European regulatory agencies release a joint report analyzing DeFi, as well as crypto lending and collateralization

On January 17, the European Banking Authority (EBA) and the European Securities and Markets Authority (ESMA) jointly released a report analyzing DeFi as well as crypto lending and collateralization. The report states that DeFi is still a niche phenomenon, with the value locked in DeFi protocols accounting for 4% of the total global cryptocurrency market value. The report also points out that although EU adoption of DeFi is higher than the global average, it lags behind other developed economies such as the United States and South Korea. In addition, the report notes that the number of DeFi hacks and stolen crypto assets usually correlates positively with the size of the DeFi market; due to decentralized exchanges accounting for 10% of global spot cryptocurrency trading volume, there are serious money laundering and terrorist financing (ML/TF) risks associated with DeFi protocols. EBA and ESMA have also found that Maximum Extractable Value (MEV)'s impact on Defi markets is very common in Defi, while MEV's negative externalities require technical solutions.

Regarding crypto asset lending and collateralization, this report analyzes observed main business model types on market along with their typical characteristics including centralized or decentralized ones. Based on existing limited evidence, participation by EU consumers financial institutions in services related to cryptocurrency lending collateral seems limited. This report lists assesses specific risks associated with each service type like excessive leverage risk exposure to ML/TF risk asymmetry information systemic risks caused by rehypothecation collateral chains procyclicality interconnectivity etc., especially some users might not receive sufficient information about these service terms conditions changes in fees interest rates paid or received requirements for collaterals other relevant disclosures etc.. However EBA ESMA haven't yet determined current risks from perspective of financial stability.