Investors need to be discerning when evaluating privately-issued stablecoins, which entail all the risks associated with central bank digital currencies (CBDCs) along with their own distinct risks, as noted 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 possess the same surveillance, backdoors, programmability, and controls characteristic of CBDCs. He explained 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 their tokens simultaneously, Kranz further explained.
Algorithmic and synthetic stablecoins, reliant on software or complex trades to maintain their dollar-peg, also entail distinct counterparty risks and dependencies, such as the risk of de-pegging due to volatility or flash crashes in crypto derivatives markets, he indicated to Cointelegraph.
Kranz emphasized that technology serves as a neutral tool, capable of fostering a better financial future for humanity or being misused, but the outcomes hinge on individual investors carefully reading the fine print, comprehending the risks, and making well-informed decisions concerning their financial instruments.
Related: S&P Global taps Chainlink to rate stablecoins’ ability to retain peg
A plethora of opportunities and risks are coming down the pipeline
According to Kranz, the swift advancement of stablecoins, crypto, and tokenization technologies resembles “10 black swan events,” emphasizing that rapid and disruptive technological progress will yield both opportunities and risks.
As of October, the stablecoin market capitalization exceeded the $300 billion mark, according to data from DeFiLlama.
Interest in stablecoins surged after the introduction of the GENIUS stablecoin bill in the United States, which garnered mixed responses from lawmakers.
US Representative Marjorie Taylor Greene from Georgia described the bill as a CBDC Trojan Horse, stating, “This bill regulates stablecoins and provides for the backdoor central bank digital currency,” 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
