A blog article titled “Cryptoassets, the metaverse, and systemic risk” was released on Tuesday by economist Owen Lock of the Bank of England and policy analyst Teresa Cascino.
According to analysts, cryptographic assets might play significant roles in the metaverse. They continued, “Widespread adoption of crypto in the metaverse … would require compliance with robust consumer protection and financial stability regulatory frameworks.”
They believe that if an open and decentralised metaverse expands, the risks associated with crypto assets could increase to have an impact on the structural stability of the financial system.
They also emphasised the need for a system for owning and trading digital items that can function across different virtual worlds in the open metaverse. They also expressed their opinion that crypto assets are well positioned to play a significant role in this.
Households may store a larger portion of their wealth in crypto also if a major open metaverse comes to fruition in order to make metaverse-based transactions or for financial purposes.
Additionally, they noted that businesses may increasingly accept cryptocurrency payments for goods and services as well as market digital assets like apparel non-fungible tokens (NFTs) in the metaverse.
This metaverse’s evolution is undetermined, according to Lock and Cascino, who added that their theory is merely a possibility.
They cautioned that if these exposures came true, a crypto asset risk crystallising could have negative financial repercussions for exposed banks as well as balance sheet losses for individuals and corporations, an effect on employment, fire sales of conventional assets from non-banks to cover margin calls on crypto asset positions, and an impact on unemployment.
In general, the authors found that the risks are greater and may become more systemic the larger the crypto asset market gets. They concluded by recommending that policymakers address the threats associated with the use of crypto assets in the metaverse before they become systemic.