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Crypto staking must be regulated along with Bitcoin, demands first major supervisor

·2 min read

The staking and lending of cryptocurrencies could eventually fall under regulatory purview alongside Bitcoin thanks in part to a market crash that has grabbed headlines the world over.

Staking is the practice of locking up a specific amount of cryptocurrency in order to validate transactions on certain blockchains.

Like an ante in poker, it’s the entry ticket that must be paid to earn rewards, and it can be forfeited or lost as a penalty for a fraudulent transaction.

Speaking a week after crypto lender Celsius froze all withdrawals, European Central Bank president Christine Lagarde emerged as the first to explicitly call for greater oversight of the practice during testimony to the European Parliament.

Referring to the Markets in Crypto-Assets (MiCA) regulation due to take effect across the EU by 2024, Lagarde argued a potential second, follow-up framework was already needed owing to the speed of current developments in the industry.

“MiCA II should regulate the activities of crypto asset staking and lending, which are definitely increasing,” she said in her function as head of the European Systemic Risk Board (ESRB).

By comparison, Gary Gensler, chair of the U.S. Securities and Exchange Commission, has only tentatively suggested many crypto companies engage in behaviors that fall under his remit, like staking, but stopped short of claiming a mandate for responsibility.

“Innovations in these unexplored and uncharted territories put consumers at risk, where the lack of regulation is often covering fraud, completely illegitimate claims about valuation, and very often speculation as well as criminal dealings,” Lagarde warned.

‘Off the chart’

The minimum to validate transactions on Ethereum’s new proof of stake blockchain, dubbed Beacon, for example, is 32 Ether, or close to $40,000.

This differs from Bitcoin’s proof of work consensus mechanism where specialized computers called mining rigs solve complex mathematical equations to win the right to create a new block of transactions and earn newly minted Bitcoin in the process.

Since decentralized finance has the potential to pose a “real risk to financial stability,” Lagarde said this, too, should be fully covered in a second regulatory framework, rather than just limit itself to financial intermediaries.

That way the world’s premier cryptocurrency, which lacks a defined issuer, would be captured as well in the future.

“Bitcoin will not be covered by MiCA I,” she said, “but hopefully for MiCA II, you will take that into account.”

Separately Lagarde said the ECB acknowledged it was wrong to call rising consumer prices transitory, and said hers was the only central bank to investigate why its staff forecasts failed to predict “off the chart” inflation.

In May, price rises harmonized across the 19 member states that share the single currency eclipsed 8% for the first time in the euro area’s history, far above its 2% target.

This story was originally featured on Fortune.com