As an analyst with a decade-long career in the financial sector and a keen interest in cryptocurrencies, I find myself increasingly intrigued by the ongoing discussions surrounding stablecoins, their underlying risks, and their potential solutions. Michael Egorov’s insights into the geopolitical risks associated with overcollateralized stablecoins are particularly enlightening, given my own experiences navigating the complex web of international financial regulations.
The dangers associated with overcollateralized stablecoins have become more apparent in recent times. Michael Egorov, founder of Curve Finance – a decentralized borrowing and lending platform, clarified that these dangers may not stem from the typical reserve-related risks investors are concerned about, but rather from geopolitical risks resulting from government regulation.
During a conversation with CryptoMoon, Egorov emphasized his viewpoint that the resources supporting collateralized stablecoins, like bank deposits and U.S. Treasury bonds, can be subjected to asset restrictions or confiscation.
Instead of relying on traditional methods like physical cash deposits or short-term cash equivalents, the founder of Curve proposes a strategy for reaching optimal decentralization by developing algorithmic stablecoins.
“If you have something totally decentralized then it is just software running onchain autonomously, so you cannot really do anything to it, and, in principle, it’s still fully trackable.”
Egorov pointed out that you don’t own the keys to the US dollar, which he considers a problem. He then emphasized that genuinely decentralized stablecoins offer “Assurance through algorithms” to investors, ensuring their funds remain secure even in the face of potential asset confiscations.
Stablecoins backed by physical fiat assets lack any such guarantee, Egorov told CryptoMoon.
Stablecoins and growing geopolitical risk
There’s increasing worry among business leaders and legislators about the potential geopolitical threats that could arise from the use of centralized stablecoins, as pointed out by the founder of Curve Finance.
On October 25th, it was reported by The Wall Street Journal that the issuer of USDT (Tether) is being investigated by American authorities over accusations of violating Anti-Money Laundering regulations and U.S. sanctions.
As an analyst, I can share that, contrary to certain allegations, Tether’s CEO, Paolo Ardoino, has refuted these claims and clarified the reserves supporting the USDT stablecoin. The reserves in question are precisely what backs our USDT stablecoin.
At a recent gathering called Plan B in Lugano, Switzerland, the head of Tether expressed concerns about the potential threats to cryptocurrencies and financial institutions from the European Union’s Markets in Crypto-Assets Regulation (MiCA), particularly due to its requirements for banking reserves.
According to Ardoino’s explanation, MiCA regulations mandate that stablecoin issuers must keep at least 60% of their deposits in banks under regulatory control. These banks can loan out approximately 90% of these assets to their clients, potentially leading to substantial deposit risk for stablecoin companies if these banks go bankrupt or experience failure.
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2024-10-30 22:52