This report reviews the key elements of the crypto ecosystem and assesses their structural flaws. There are three main takeaways. First, due to underlying economic incentives, the crypto ecosystem is characterised by congestion and high fees, which lead to fragmentation. Second, despite an original ethos of decentralisation, crypto and decentralised finance (DeFi) often feature substantial de-facto centralisation, which introduces various risks. Third, while DeFi mostly replicates services offered by the traditional financial system, it amplifies known risks. Moreover, as DeFi does not finance activity in the real economy, its growth is driven by the speculative influx of new users, with substantial risks to investors. The report outlines policy options to mitigate the multiple risks crypto poses to investors, the traditional financial system and the economy at large.

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