Protection of Portfolios and Financial Consumers from Cryptoasset Frauds

Abstract

Abstract This chapter introduces the fundamentals of portfolio and financial consumer protection from frauds in the cryptoasset space. Cryptoassets pose new risks to portfolios and financial consumers: idiosyncratic risks stemming from their unique features and systematic risks arising from transitioning from centralized to decentralized finance. Market experience indicates that these risks threaten every portfolio and financial consumer holding cryptoassets. In the consumer protection framework, cryptoasset risks are higher than traditional asset risks. Cryptoassets fall outside the regulatory domain in many jurisdictions. Moreover, their decentralized nature, technological attributes, and the momentum of financial technology cause asymmetric technology, disarming system-based portfolio and consumer protection mechanisms against frauds and abuses. Hence, the idiosyncratic and systematic risks of cryptoassets highlight the importance of developing more vigilant self-protection mechanisms.