US Treasury has released its first financial risk assessment for NFTs to help regulators understand potential dangers in the rapidly growing NFT industry.
In an effort to offer regulators a more comprehensive understanding of the possible dangers and security problems that are associated with the rapidly developing industry, the US Treasury Department has published its very first finance risk assessment for nonfungible tokens (NFTs).
We have identified a number of potential risks, including the possibility that terrorist organizations could use non-financial transactions (NFTs) to finance their operations, the possibility that state actors could use NFTs to fund nuclear proliferation, the possibility of money laundering, and the possibility of investors dealing with theft, rug-pulls, or other well-known forms of fraud.
On multiple occasions, the report emphasized that the vast majority of these illegal acts are carried out through the use of fiat currency for financing and transactions, and that they are not exclusive to the realm of digital assets.
This risk assessment recognizes that most money laundering, terrorist financing, and proliferation financing by volume and value of transactions occurs in fiat currency or otherwise outside the digital asset ecosystem via more traditional methods,” the research stated in its conclusion.
US Treasury Finds Traditional Fraud Common in Digital Assets
Furthermore, the US Treasury discovered that even in instances of investor or market misuse, digital asset fraud typically occurs through age-old schemes that predate the advent of blockchain and cryptocurrencies. These scams include Ponzi schemes or the exploitation of inside knowledge to gain an advantage.
On the other hand, the research explained that fraud has also occurred through processes that are exclusive to digital assets, such as the manipulation of smart contracts. The US Treasury’s evaluation revealed a significant potential for abuse and illegal activity when using non-financial instruments (NFTs).
However, the report also acknowledged that the use of NFTs for financing terrorist organizations, nuclear proliferation, or drug trafficking is extremely rare, if it occurs at all. The study noted the theft of digital assets by the government of North Korea (DPRK) and affiliated hacker organizations as perhaps the most significant example of destructive action.
Once again, the US Treasury Department pointed out that non-fungible tokens (NFTs) were a relatively insignificant portion of the overall loss of digital assets and stated that the DPRK had also hacked into other financial institutions.In its conclusion, the report made a number of suggestions for mitigating the potential for abuse through non-fungible tokens (NFTs).
These suggestions included the regulation of the NFT market, the collaboration with industry insiders to prevent fraud, the collaboration with foreign partners to prevent illegal geopolitical activity, and the education of consumers regarding the potential risks that are associated with non-fungible tokens and digital assets.