Investors ought to exercise “discernment” when evaluating privately-issued stablecoins, which entail all the risks associated with central bank digital currencies (CBDCs) in addition to their own specific risks, as stated by Jeremy Kranz, founder and managing partner of venture capital firm Sentinel Global.
Kranz referred to privately-issued stablecoins as “central business digital currency,” highlighting that they exhibit all the surveillance, backdoors, programmability, and controls typical of CBDCs. He mentioned to Cointelegraph:
“Central business digital currency is really not necessarily that different. So, if JP Morgan issued a dollar stablecoin and controlled it through the Patriot Act, or whatever else comes out in the future, they can freeze your money and unbank you.”
Issuers of overcollateralized stablecoins, which secure their blockchain tokens with cash and short-term government securities, may face “bank runs” if too many holders try to redeem the tokens simultaneously, Kranz added.
Algorithmic and synthetic stablecoins, relying on software or complex trades to maintain their dollar-peg, also present their own counterparty risks and dependencies, including the chance of de-pegging due to volatility or flash crashes in crypto derivatives markets, he stated to Cointelegraph.
Kranz emphasized that technology is a neutral tool that can either enhance financial futures for humanity or be misused, but the outcomes depend on individual investors carefully reading the fine print, comprehending the risks, and making informed decisions about the financial instruments they wish to hold.
Related: S&P Global taps Chainlink to rate stablecoins’ ability to retain peg
A plethora of opportunities and risks are coming down the pipeline
The fast-paced innovation in stablecoins, crypto, and tokenization technologies resembles “10 black swan events,” according to Kranz, who reiterated that both opportunities and risks will emerge from swift and disruptive technological advancements.
The stablecoin market capitalization surpassed the $300 billion mark in October, according to data from DeFiLlama.
There has been increased interest in stablecoins following the passage of the GENIUS stablecoin bill in the United States, which elicited mixed responses from lawmakers.
Marjorie Taylor Greene, a US representative from Georgia, labeled the bill a CBDC Trojan Horse. “This bill regulates stablecoins and provides for the backdoor central bank digital currency,” she remarked in a July 15 X post.
“The Federal Reserve has been planning a CBDC for years, and this will open the door to move you to a cashless society and into digital currency that can be weaponized against you by an authoritarian government controlling your ability to buy and sell,” she added.
Magazine: Bitcoin vs stablecoins showdown looms as GENIUS Act nears
