ECB warns that crypto risks could spill over into wider economy

More financial institutions engaging with crypto or digital assets being used as a form of payment could increase "spillover to the wider economy" the European Central Bank wrote in a report on Tuesday.

Regulators have been turning their heads toward the devastating collapse of the Terra blockchain coins, which put into question the stability of algorithmic stablecoins like UST, which are not backed by a fiat currency.

"Given the speed of crypto developments and the increasing risks, it is important to bring crypto-assets into the regulatory perimeter and under supervision as a matter of urgency," the ECB said.

The European Union is currently putting together legislation to regulate cryptocurrencies called the Markets in Crypto Assets package.

European Central Bank officials have highlighted the risks of crypto before. The bank's President Christine Lagarde said recently that crypto had been a threat in the past and still is.