Blockchain technology as a potential risk source and a risk mitigator: US reflections and outlook

Mark Cianci, Xochitl Strohbehn and John King
Additional contact information
Mark Cianci: Counsel, Ropes & Gray LLP, USA
Xochitl Strohbehn: Litigation Partner, Venable LLP, USA
John King: Litigation Associate, Ropes & Gray LLP, USA

Journal of Risk Management in Financial Institutions, 2023, vol. 16, issue 4, 326-336

Abstract: Cryptocurrency, its risks, its volatility, and recent collapses of crypto-related firms have been splashed across the news for years. It is therefore unsurprising that recent developments surrounding disruption in the US banking system have thrust cryptocurrency into the spotlight again, with conventional financial analysts debating the degree to which blockchain-related institutions and products may have contributed to recent bank runs and instability. In the meantime, many US regulators have tended to focus on the potential downsides and risks of blockchain technology, and have recently increased the intensity of their enforcement activities against crypto market participants, often premised on decades-old legislation and case law. In the context of these broad trends, an underexplored idea is that greater integration of blockchain technology into the mainstream financial system could actually reduce bank run risk. If that is right, certain US regulators should modulate their approach and devote further resources to fostering a healthy adoption of blockchain technology within the financial system. Against that backdrop, this paper explores the potential capacity of blockchain technology to curtail widespread risk in the financial system, suggests that blockchain technology indeed has significant power to act as a risk mitigant, offers some practical observations as to how blockchain adoption could improve the risk profile of financial systems, and concludes that the promise of blockchain technology in this regard should spur US regulators to foster and promote the growth of blockchain.

Keywords: blockchain; cryptocurrency; banking crisis; smart contracts; liquidity risks; stablecoins; banks runs (search for similar items in EconPapers)
JEL-codes: E5 G2 (search for similar items in EconPapers)
Date: 2023
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://hstalks.com/article/8025/download/ (application/pdf)
https://hstalks.com/article/8025/ (text/html)
Requires a paid subscription for full access.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aza:rmfi00:y:2023:v:16:i:4:p:326-336

Access Statistics for this article

More articles in Journal of Risk Management in Financial Institutions from Henry Stewart Publications
Bibliographic data for series maintained by Henry Stewart Talks ().