As part of measures to mitigate risks, Fabio Panetta, an executive board member of the European Central Bank (ECB), advocated prohibiting crypto assets with a major environmental impact.

Panetta stated in his remarks for the Insight Summit at the London Business School on Dec. 7 that standardizing crypto taxes across global jurisdictions could solve some of the energy and environmental expenses associated with mining and validation.

He also stated that tokens "deemed to have an excessive ecological footprint" should be banned, citing proof-of-work assets.

Regarding the first drawbacks of the crypto market, Panetta said that many crypto assets lack backing, making them extremely volatile and lacking in inherent worth. They are therefore only useful as speculative assets and cannot be used for digital payments.

Regarding the stability of stablecoins, Panetta claimed that regulated banks like the ECB must support crypto assets (like UST) in order for their values to remain stable.

The collapse of Terra and FTX and the subsequent broad contagion, according to the ECB official, demonstrate how linked and leveraged the cryptocurrency market is. Allowing leverage positions up to 125x, he cautioned, will disperse the risk across the whole cryptocurrency market.

The ECB official's calls for more regulatory monitoring in a 'Wild West' crypto market came after the European Parliament's Committee on Economic and Monetary Affairs approved the Markets in Crypto Assets bill, or MiCA, in October following significant debate. Following legal and linguistic tests by EU parliamentarians, the crypto framework awaits final approval, with many expecting the legislation to go into effect in 2024.

Panetta believes that the crypto market should be controlled in the same way that other sections of the financial economy are.

Regulatory frameworks will ensure that stablecoin issuers receive an e-money license to govern their reserves. Crypto asset issuers will also be required to educate investors about the inherent risk of purchasing any asset.

Due to the fact that crypto assets have no geographical boundaries, Panetta continued, there is a need for a worldwide regulatory framework that will safeguard consumers from crypto asset manipulations and lower the risk of spreading infections in the future.

Global lawmakers have frequently used the connection between cryptocurrency trades and mining activities and environmental issues as a rallying cry. The New York state legislature approved a two-year ban on cryptocurrency miners that use power from fossil fuel power facilities in the United States.

An outright ban on cryptocurrency mining was previously rejected by EU officials, but MiCA might oblige businesses to disclose any potential environmental damage.