Over the last few years, cryptocurrencies—or digital currencies— have moved from being an obscure, skeptically-viewed theoretical side project to an asset pitched to Main Street households, capturing headlines, public dialogue, and the interest of major tech corporations. Why all the attention? Is this something real or just a modern-day gold rush that will end in crushed dreams and lost money? Our Fact Sheet explores the answers to these questions.

Cryptocurrencies, and the DeFi ecosystem associated with them, potentially can offer a means for greater financial inclusion and the provision of faster, easier, and cheaper financial products and services. However, it is unclear whether these benefits will be realized and what the involvement of cryptocurrencies offers beyond just the underlying distributed ledger technology. Further, ‘decentralized’ seems to be a euphemism for ‘out of the government’s reach’ and ‘unregulated,’ both of which are negatives when it comes to consumer protections and mitigating risks to the financial system.

What is clear is that cryptocurrencies pose the same or similar risks and raise the same or similar consumer protection issues as those of the traditional financial system. In fact, there has already been rampant consumer fraud in the cryptocurrency industry. Additionally, systemic risks would arise if these assets gain broader adoption and are not sufficiently regulated. Regulatory agencies must act to appropriately regulate the industry so that the American people can realize any real benefits while being protected from the risks.

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