Investors need to use “discernment” when considering privately issued stablecoins, said Jeremy Krantz, founder and managing partner of venture capital firm Sentinel Global. Stablecoins come with all the risks of central bank digital currencies (CBDCs), plus their own risks.
Krantz calls privately issued stablecoins “core business digital currencies,” with all the monitoring, backdoors, programmability, and control capabilities of a CBDC. He told Cointelegraph:
“Central business digital currencies are actually not necessarily all that different. So if JPMorgan issues a dollar stablecoin and controls it through the Patriot Act or whatever else comes along in the future, they can freeze your money and unlock your bank account.”
Krantz added that over-collateralized stablecoin issuers that back their blockchain tokens with cash or short-term government securities could find themselves in a “run” if too many holders try to redeem their tokens at the same time.
He told Cointelegraph that algorithmic and synthetic stablecoins that rely on software and complex transactions to maintain dollar pegs also have their own counterparty risks and dependencies, including volatility in the crypto derivatives market and the risk of depegging due to a flash crash.
Kranz said technology is a neutral tool that can be used and abused to build a better financial future for humanity, but the outcome depends on individual investors reading the fine print, understanding the risks and making informed choices about the financial products they hold.
Related: S&P Global uses Chainlink to assess stablecoins’ ability to maintain pegs
Huge opportunities and risks loom in the pipeline
Kranz told Cointelegraph that the rapid pace of innovation in stablecoins, cryptocurrencies, and tokenization technology is like “ten black swan events,” emphasizing that both opportunities and risks arise from rapid and disruptive technological advances.
The stablecoin market capitalization crossed the $300 billion milestone in October, according to data from DeFiLlama.
Interest in stablecoins increased following the passage of the GENIUS stablecoin bill in the United States, but there were mixed reactions from lawmakers.
U.S. Rep. Marjorie Taylor Greene of Georgia called the bill a Trojan horse for CBDCs. “This bill would regulate stablecoins and provide for backdoor central bank digital currencies,” she said in a July 15 X post.
“The Federal Reserve has been planning a CBDC for years, and this will open you up to a cashless society and to digital currencies that can be weaponized against you by authoritarian governments that control your ability to buy and sell,” she added.
magazine: As the GENIUS Act approaches, a Bitcoin vs. stablecoin showdown looms