Investors need to show “discernment” when evaluating privately-issued stablecoins, as they carry all the risks associated with central bank digital currencies (CBDCs) along with their own distinct risks, according to Jeremy Kranz, founder and managing partner of the venture capital firm Sentinel Global.
Kranz referred to privately-issued stablecoins as “central business digital currency,” highlighting that they possess the same surveillance features, backdoors, programmability, and controls as 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 any forthcoming legislation, they can freeze your funds and effectively 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 noted.
Algorithmic and synthetic stablecoins, which use software or complex trades for maintaining their dollar-pegged value, also exhibit unique counterparty risks and dependencies, including the potential for de-pegging due to volatility or flash crashes in the crypto derivatives markets, he told Cointelegraph.
Kranz asserted that technology is a neutral instrument that can be utilized for advancing a better financial future for humanity or potentially misused. However, the outcomes heavily depend on individual investors thoroughly understanding the terms, acknowledging the risks, and making informed decisions about the financial instruments they opt to hold.
Related: S&P Global taps Chainlink to assess stablecoins’ ability to maintain their peg
A plethora of opportunities and risks are approaching
The swift innovation within stablecoins, crypto, and tokenization technologies is akin to “10 black swan events,” Kranz remarked to Cointelegraph, emphasizing that rapid and disruptive technological advancements will generate both opportunities and risks.
The market capitalization for stablecoins surpassed the $300 billion mark in October, as reported by data from DeFiLlama.
There has been increased interest in stablecoins following the approval 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 facilitates the backdoor central bank digital currency,” she stated in a July 15 X post.
“The Federal Reserve has been preparing for a CBDC for years, and this will pave the way for a transition to a cashless society and a digital currency that can be wielded against you by an authoritarian government that controls your ability to buy and sell,” she further commented.
Magazine: Bitcoin vs stablecoins showdown looms as GENIUS Act approaches
