Stablecoins are really ‘central business digital currencies’ — VC

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.