30s Summary

Curve Finance founder Michael Egorov has highlighted the potential downsides of overcollateralized stablecoins, particularly the risk of government regulations causing their assets to be frozen or seized. Egorov believes the solution lies in maximizing decentralization through the use of algorithmic stablecoins. He states these can offer assurance as unlike fiat-backed stablecoins, they cannot disappear due to asset seizures. The increased geopolitical risks of centralized stablecoins have been echoed by other industry leaders, and the controversial proposed stablecoin regulations, notably the potential requiring of issuers to hold 60% of their deposits in regulated banks.

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Michael Egorov, the guy who started Curve Finance, which is all about borrowing and lending crypto, recently gave us the lowdown on the potential downsides of overcollateralized stablecoins. Now, it’s not the risks you’d usually associate with these kinds of investments, but more about the potential problems caused by government regulations.

During a chat with Cointelegraph, Egorov said that the assets that make these stablecoins safe- like cash in banks or government securities- could be in jeopardy because they could be frozen or seized.

We all saw the US Senator Bill Hagerty’s proposal to regulate stablecoins in the US. So what’s Egorov’s solution for these risks? He’s all about maximizing decentralization with algorithmic stablecoins, which don’t need cash deposits or equivalents.

“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.”

For regular dollars, you never truly own them, which is a problem. But if you have fully decentralized stablecoins, they offer “Algorithmic assurance” to investors that their funds won’t just disappear due to asset seizures. According to Egorov, stablecoins backed by real-world fiat assets don’t have such a security net.

Now, there’s an increasing worry about the geopolitical risks of centralized stablecoins among key players in the industry and law enforcement. For example, on October 25, The Wall Street Journal reported that Tether- the company that released USDT- was being investigated by US authorities for allegedly violating Anti-Money Laundering laws and US sanctions. Tether’s CEO, Paolo Ardoino, has denied these allegations and detailed the reserve assets that are backing USDT.

Ardoino also mentioned recently that European Union’s Markets in Crypto-Assets Regulation (MiCA) poses systemic risks for crypto and finance due to banking reserves requirements. He claims they require stablecoin issuers to hold at least 60% of their deposits in regulated banks, which can lend 90% of those assets to clients, creating a significant risk for stablecoin firms if a bank goes belly-up.

Source: Cointelegraph