The IMF’s Global Financial Stability Report, published in October 2021, noted that the market capitalization of crypto assets has grown significantly amid large bouts of price volatility. Through early May, the market capitalization almost tripled in 2021 to an all-time high of US$2.5 trillion. This was followed by a 40% fall in the same month as concerns from institutional holders about the environmental impact of crypto assets grew and global regulatory scrutiny of the crypto ecosystem escalated. Moreover, the market capitalization of stablecoins has quadrupled in 2021 to more than US$120 billion. Issuance and trading activity has been tolerated in many countries around the world. While authorities such as central banks and financial regulators do not want to stunt innovation, the large number of high profile cases alleging fraud and money laundering is worrisome. To this end, they are now tasked with creating a legal framework that is modern and accommodative but also prudent. They are challenged to define token types and uses, figure out how they fit into existing law, and develop a licensing structure.
