Central Bank of Taiwan: NFTs have low liquidity and high risks, and are not suitable for public investment

The Central Bank of Taiwan held its second quarterly board of directors meeting last week. The hype around crypto assets attracted people to indulge in gambling-like money games. In particular, DeFi removes the important role of traditional financial intermediaries as gatekeepers. In order to control related risks, it is recommended to include financial The scope of supervision; and it is mentioned that NFTs have low liquidity and high risks, belong to a niche market, and most market participants have not made profits, so they are not suitable for public investment. Therefore, the Central Bank of Taiwan reminds the public that it is necessary to understand the relevant risk issues before investing in the DeFi and NFT markets, so as not to lose more than the gains.

According to the reference materials published after the meeting , the Central Bank of Taiwan pointed out that DeFi is developing outside the scope of supervision, and many risks have arisen, such as: information asymmetry and fraud, trading and price manipulation, possible gaps in money laundering and terrorism financing, Road attacks, opaque governance mechanisms, and risk spillovers into traditional financial markets.

The Central Bank of Taiwan quoted the relevant guidelines of the International Financial Action Task Force for the Prevention of Money Laundering (FATF) and stated that although DeFi itself is only a software or technology, it does not meet the virtual asset service provider (VASP) defined by the FATF standard, but the creators of DeFi, Owners and operators, or others who can control or influence DeFi, may be VASPs and must follow money laundering prevention regulations.

At the same time, the Central Bank of Taiwan also warned against the NFT boom for the first time. The central bank emphasized that NFTs are still a niche market, with low liquidity and high investment risks, and are not suitable for public investment, and most participants in the NFT market have not made profits.

The Central Bank of Taiwan quoted a survey by Chainalysis as pointing out that only 28.5% of the first-hand purchasers of NFTs would make a profit when reselling them. According to a Nansen report, one-third of the NFTs that have been minted eventually failed to be sold.

The Central Bank of Taiwan believes that there are still many problems in the NFT market, such as obtaining NFT does not necessarily mean obtaining ownership of goods; consumers may buy plagiarized, fraudulent or counterfeit NFTs; buying and selling NFTs may involve money laundering and other illegal transactions; Fragmentation of NFTs may also involve fund-raising or gold-absorbing behaviors such as securities issuance; since most countries have not yet incorporated NFTs into supervision, it is difficult to expect consumers to be properly protected.

However, the Central Bank of Taiwan also mentioned that if NFT can overcome practical and legal issues regarding the positioning and ownership of digital commodity rights in the future, it may have the potential to form an alternative market for digital commodity trading.

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