Investors should use “discernment” when considering privately issued stablecoins, which carry all the risks of a central bank digital currency (CBDC) as well as their own risks, according to Jeremy Kranz, founder and managing partner of venture capital firm Sentinel Global.
Kranz called privately issued stablecoins “the enterprise’s core digital currency,” which features all monitoring, backdoors, programmability and controls as a CBDC. He told Cointelegraph:
“Corporate digital currency isn’t necessarily that different. So if JP Morgan issued a dollar stablecoin and controlled it through the Patriot Act, or whatever else came out in the future, they could freeze your money and take away your bank accounts.”
Over-collateralized stablecoin issuers, which back their blockchain tokens with cash and short-term government securities, can be subject to “bank runs” if too many holders try to redeem the tokens at once, Kranz added.
Algorithmic and synthetic stablecoins, which rely on software or complex transactions to maintain their dollar peg, also feature their own stablecoins. counterparty risks and dependencieslike the risk of unanchoring 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 results depend on individual investors reading the fine print, understanding the risks and making informed decisions about the financial instruments they choose to hold.
Related: S&P Global taps Chainlink to assess the ability of stablecoins to maintain their peg
A plethora of opportunities and risks loom
The rapid pace of innovation in stablecoin, crypto and tokenization technologies is like “10 black swan events,” Kranz told Cointelegraph, emphasizing that opportunities and risks will arise from rapid and disruptive technological advancements.
The market capitalization of the stablecoin reached the $300 billion milestone in October, according to data by DeFiLlama.
Stablecoins saw increased interest after the GENIUS stablecoin bill passed in the United States, which drew mixed reactions from lawmakers.
Marjorie Taylor Greene, U.S. Representative from Georgia, called the bill a CBDC Trojan horse. “This bill regulates stablecoins and provides for backdoor central bank digital currency,” she said in a July 15 statement. job.
“The Federal Reserve has been planning a CBDC for years, and this will open the door to a cashless society and a digital currency that can be weaponized against you by an authoritarian government controlling your ability to buy and sell,” she added.
Review: The Bitcoin vs stablecoins confrontation looms as the GENIUS Act approaches
