The Impact of Multifunction Crypto-Asset Intermediaries on Market Stability Post-FTX Collapse

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The Financial Stability Board (FSB) report, along with other sources, offers significant insights into the impact of multifunction crypto-asset intermediaries (MCIs) and key market events, such as the collapse of FTX in November 2022 and the crypto-asset market turmoil in May/June 2022. These events have underscored the crucial role and potential risks posed by MCIs in the crypto-asset markets.

MCIs are firms or groups of affiliated firms providing a wide range of services and products centered around a trading platform. Many engage in proprietary trading and investment, while some issue, promote, and distribute crypto-assets, including stablecoins. The structural vulnerabilities they can exacerbate in the markets include issues related to leverage and liquidity mismatch. Their vulnerabilities are akin to traditional finance, such as technology and operational vulnerabilities, leverage, liquidity mismatch, and interconnections. Some combinations of functions within a single MCI can amplify these vulnerabilities, especially in the absence of effective controls, operational transparency, and conflict of interest management. The centrality of MCIs in the crypto-asset ecosystem and their concentration and market power pose additional risks. These vulnerabilities could spill over into the traditional financial system through various channels​​​​.

The FSB’s assessment indicates that the threat to financial stability from an MCI's failure is limited at present, but significant information gaps make this a qualitative assessment. The financial stability implications of MCIs depend on the development of the crypto-asset sector, the evolution of MCIs' roles, and the implementation and enforcement of comprehensive, consistent