Economics Dictionary of ArgumentsHome
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| Concentration risk: Concentration risk is the potential for significant financial loss due to a high exposure to a single counterparty, industry, geographic region, or type of asset. This lack of diversification can make a portfolio or institution vulnerable if that specific area experiences an adverse event. It's a key risk management concern for banks, investors, and other financial entities. See also Risks, Financial transactions._____________Annotation: The above characterizations of concepts are neither definitions nor exhausting presentations of problems related to them. Instead, they are intended to give a short introduction to the contributions below. – Lexicon of Arguments. | |||
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IMF Working Papers on Concentration Risk - Dictionary of Arguments
IMF V 7 Concentration Risk/cryptocurrency/IMF/Hacibedel/Perez-Saiz: Despite the decentralized design of crypto assets, concentration and propagation risks in the crypto industry are relatively high. In theory, the decentralized nature of crypto assets makes them less prone to a single point of failure risk, as multiple nodes and validators potentially spread around the world (Bains et al., 2022)(1). Decentralization could improve security as well as reduce the need for trust in a single entity. In practice, concentration has also increased over the years due to high network effects, scale economies or the need to diversify risks. IMF V 7/8 There has been a remarkable trend towards concentration in the industry through the formation of large mining pools, the dominance of Bitcoin and Ethereum - currently representing more than half of the total market capitalization of crypto assets - or the emergence of large exchange platforms and wallets (see Cong et al., 2021(2); Makarov and Schoar, 2021)(3). Network effects or scale economies are also relatively important in this industry (see Halaburda et al., 2022)(4), which tends to raise concentration over time and increase the systemic importance of some key actors in the industry.* Decentralization: Decentralization of crypto assets and a high reliance on complex technologies and automatization elevates the importance of operational vulnerabilities and cyber risk in the crypto eco system. Crypto: Crypto technologies a) often rely on automated processes with little or no human intervention; b) are constantly evolving and transmuting, a source of rapid innovation; and c) they are decentralized by design which makes governance more difficult. Cyber risks: Cyber risks are estimated to be elevated in most types of crypto assets as complex technologies, actors, and weak governance are involved. Indeed, emerging financial technologies are particularly exposed to cyber-attacks given their high reliance on technology.** >Cryptocurrency risks, >Cryptocurrency, >Crypto transactions, >Fake transactions, >Cross-border payments, >Money laundry, >Crypto regulation, >Blockchain, >Bitcoin, >Crypto Firms, >Crypto and Banking, >Payment systems, >Stablecoins. * The recent collapse of FTX, a large crypto conglomerate, highlighted the inadequate governance and opaque corporate interlinkages that could arise among large crypto players (…). **In 2021, the two largest crypto-related loses were estimated at about $2 billion each, compared to an estimated operational risk losses of about $15 billion for the financial sector (Risk.net “Top 10 op risk losses for 2021 hog $15bn total”, 14 January 2022). 1. Bains, P., Ismail, A., Melo, F. and Sugimoto, N., 2022. Regulating the Crypto Ecosystem: The Case of Unbacked Crypto Assets. IMF FinTech Notes, 2022 (007). 2. Cong, L.W., He, Z. and Li, J., 2021. Decentralized mining in centralized pools. The Review of Financial Studies, 34(3), pp.1191-1235. 3. Makarov, I. and Schoar, A., 2021. Blockchain analysis of the bitcoin market (No. w29396). National Bureau of Economic Research. 4. Halaburda, H., Haeringer, G., Gans, J. and Gandal, N., 2022. The microeconomics of cryptocurrencies. Journal of Economic Literature, 60(3), pp.971-1013._____________Explanation of symbols: Roman numerals indicate the source, arabic numerals indicate the page number. The corresponding books are indicated on the right hand side. ((s)…): Comment by the sender of the contribution. Translations: Dictionary of Arguments The note [Concept/Author], [Author1]Vs[Author2] or [Author]Vs[term] resp. "problem:"/"solution:", "old:"/"new:" and "thesis:" is an addition from the Dictionary of Arguments. If a German edition is specified, the page numbers refer to this edition. |
IMF Working Papers IMF II IMF Working Paper André Reslow Gabriel Söderberg, Cross-Border Payments with Retail Central Bank Digital Currencies: Design and Policy Considerations IMF Fintech Note 2024/002 Washington, DC. 2024 IMF III IMF Working Papers Clemens Graf von Luckner Robin Koepke, Crypto as a Marketplace for Capital Flight. IMF Working Paper 24/133 Washington, DC. 2024 IMF IV IMF Working Papers Marco Pani Rodolfo Maino, “Could Digital Currencies Lead to the Disappearance of Cash from the Market? Insights from a ’Merchant-Customer’ Model.” IMF Working Paper WP/25/56 Washington, DC. 2025 |
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> Counter arguments against IMF Working Papers
> Counter arguments in relation to Concentration Risk
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