Understanding the Risks of Privately Issued Stablecoins
According to Jeremy Kranz, founder and managing partner of venture capital firm Sentinel Global, investors should exercise “discretion” when considering privately issued stablecoins, which carry all the risks of a central bank digital currency (CBDC) as well as their own unique risks. Kranz described privately issued stablecoins as “central digital business currencies” that have all the surveillance, backdoor, programmability and control features like CBDCs.
Kranz told Cointelegraph: “Central Business digital currency really isn’t necessarily any different. So if JP Morgan issues a dollar stablecoin and controls 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 that back their blockchain tokens with cash and short-term government securities could face a “bank run” if too many holders try to redeem the tokens at the same time. Algorithmic and synthetic stablecoins that rely on software or complex trades to maintain their dollar peg also have their own counterparty risks and dependencies, such as the risk of decoupling from volatility or flash crashes in crypto derivatives markets, he told Cointelegraph.
A Wealth of Opportunities and Risks
The rapid pace of innovation in stablecoins, crypto, and tokenization technologies is like “10 black swan events,” Kranz told Cointelegraph, emphasizing that both opportunities and risks arise from rapid and disruptive technological advances. According to data from DeFiLlama, the market capitalization of stablecoins surpassed $300 billion in October. 
Stablecoins experienced increased interest following the passage of the GENIUS stablecoin law in the United States, which elicited mixed reactions from lawmakers. Marjorie Taylor Greene, a US representative from Georgia, called the bill a CBDC Trojan. “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 a cashless society and a digital currency that can be used as a weapon against you by an authoritarian government that controls your ability to buy and sell,” she added.
Kranz said technology is a neutral tool that can be used or abused to build a better financial future for humanity. However, 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. For more information, read the full article on Cointelegraph.
