Investors should apply “discernment” when evaluating privately-issued stablecoins, which come with all the risks associated with a central bank digital currency (CBDC) along with their own unique challenges, 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,” which embody the same surveillance, backdoors, programmability, and controls found in 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.”
Kranz added that overcollateralized stablecoin issuers, who back their blockchain tokens with cash and short-term government securities, may face “bank runs” if too many users try to redeem the tokens simultaneously.
Algorithmic and synthetic stablecoins, which depend on software or complex trades to maintain their dollar-peg, also introduce unique counterparty risks and dependencies, such as de-pegging from volatility or flash crashes in the crypto derivatives markets, he conveyed to Cointelegraph.
Kranz pointed out that technology serves as a neutral tool that can be geared towards creating a better financial future or be misused, stressing that the outcomes hinge on whether individual investors scrutinize the details, grasp the risks, and make informed decisions about the financial instruments they opt 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 swift innovation occurring in stablecoins, crypto, and tokenization technologies represents “10 black swan events,” Kranz told Cointelegraph, emphasizing that rapid and disruptive technological progress will reveal both opportunities and risks.
The market capitalization of stablecoins surpassed the $300 billion mark in October, based on data from DeFiLlama.
Interest in stablecoins surged following the enactment of the GENIUS stablecoin bill in the United States, which received mixed responses from lawmakers.
Representative Marjorie Taylor Greene of Georgia described the bill as a CBDC Trojan Horse. “This bill regulates stablecoins and provides for the backdoor central bank digital currency,” she stated 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
