EU Authorities Believe DeFi Market Is Not a Threat for Financial Stability

Reading Time: < 1 minute

According to a report published by the European Securities and Markets Authority (ESMA) last week, there is no perceived risk to the EU financial stability from the DeFi (decentralized finance) market.

The regulator stated that the DeFi industry, which uses digital currencies, is still in its early stages and does not pose a threat to traditional banking due to the low level of investment in its projects.

ESMA analysts highlighted that the current size of the cryptocurrency market, including DeFi, is relatively small and there are limited interactions between traditional markets and digital asset ecosystems, thus posing no financial stability risks.

As per data from DeFiLlama, the total value of digital assets locked in DeFi projects is currently around $40 billion, while the total cryptocurrency market capitalization is just over $1 trillion.

In comparison, the European Commission estimates that EU financial institutions hold assets worth approximately $90 trillion.

ESMA noted that the size of the crypto market is similar to the assets of only one large European bank. However, the report also mentioned that EU law enforcement agencies have observed criminal organizations using DeFi protocols for money laundering purposes.