Investors should exercise “discernment” when considering privately-issued stablecoins, which carry all the risks of a central bank digital currency (CBDC) plus their own unique risks, according to Jeremy Kranz, founder and managing partner of venture capital firm Sentinel Global.
Kranz called privately-issued stablecoins “central business digital currency,” which feature all of the surveillance, backdoors, programmability, and controls as CBDCs. He told 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.”
Overcollateralized stablecoin issuers, which back their blockchain tokens with cash and short-term government securities, can be subject to “bank runs” if too many holders attempt to redeem the tokens at the same time, Kranz added.
Algorithmic and synthetic stablecoins, which rely on software or complex trades to maintain their dollar-peg, also feature their own counterparty risks and dependencies, like the risk of de-pegging from volatility or flash crashes in crypto derivatives markets, he told Cointelegraph.
Kranz said technology is a neutral tool that can be used to build a better financial future for humanity or be misused, but the outcomes are reliant on individual investors reading the fine print, understanding the risks, and making informed choices about the financial instruments they choose 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 rapid pace of innovation in stablecoins, crypto, and tokenization technologies is like “10 black swan events,” Kranz told Cointelegraph, stressing that both opportunities and risks will arise from rapid and disruptive technological progress.
The stablecoin market capitalization crossed the $300 billion milestone in October, according to data from DeFiLlama.
Stablecoins experienced heightened interest following the passage of the GENIUS stablecoin bill in the United States, which drew mixed reactions from lawmakers.
Marjorie Taylor Greene, a US representative from Georgia, called the bill a CBDC Trojan Horse. “This bill regulates stablecoins and provides for the backdoor central bank digital currency,” she said 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.
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