Sentinel Global founder warns stablecoins mirror CBDC risks

Jeremy Kranz, founder and managing partner of the venture capital firm Sentinel Global, has urged investors to exercise caution when dealing with privately issued stablecoins.

According to Kranz, these assets carry all the risks associated with central bank digital currencies (CBDCs), as well as additional, unique vulnerabilities of their own.

Kranz refers to privately issued stablecoins as a “central business digital currency.” Based on his explanation, they include similar monitoring features, backdoors, programmability, and controls in CBDCs.

Jeremy Kranz warns of risks associated with stablecoins 

When asked to elaborate, Kranz noted that central business digital currencies and stablecoins are essentially alike. To illustrate this, the founder of Sentinel Global provided an example, explaining that if JP Morgan developed a dollar-pegged stablecoin and managed it under laws such as the Patriot Act or any future regulations, they could decide to freeze one’s funds or stop them from utilizing banking services.

Kranz also mentioned that stablecoin issuers who provide more collateral than necessary and acquire their blockchain tokens using cash and short-term government securities could encounter “bank runs” if many holders attempt to cash in their tokens simultaneously.

Additionally, he observed that algorithmic and synthetic stablecoins rely on software or complex transactions to maintain their value in relation to the dollar. Based on his explanation, this move introduces risks, such as increasing the likelihood of losing that connection amid situations like market volatility or sudden declines in crypto derivative markets.

Kranz’s remarks followed his perspective that technology is a neutral tool that can either assist in creating an enhanced financial future for individuals or be misused. 

According to him, the outcomes depend on individual investors taking the time to read the details, evaluating the risks, and making a prudent choice regarding their financial products. 

Considering the effects the swift development of stablecoins, crypto, and tokenization technologies brings about, Kranz likened the development to being “10 black swan events” because these advancements bring both chances and dangers.

The GENIUS stablecoin bill faces criticism from several US lawmakers

DeFiLlama recently released data showing that the total market value of stablecoins rose above $300 billion in October. This demonstrated growing interest in stablecoin following the announcement that the US passed its GENIUS stablecoin bill in July.

This was after the US Senate voted 68-30 to approve the GENIUS Act, around six weeks after Tennessee Senator Bill Hagerty introduced it. With this remarkable announcement, sources have highlighted the increasing likelihood that the House of Representatives may soon review the STABLE Act, the bill’s companion, which may undergo various adjustments before a final vote. Notably, the STABLE Act and the GENIUS Act aim to regulate stablecoins. 

Regarding the approval of the GENIUS Act, lawmakers received the announcement with mixed reactions. An example of these lawmakers is Marjorie Taylor Greene, a representative from Georgia. Greene referred to the bill as a CBDC Trojan Horse. 

She further shared an X post dated July 15, stating that this bill regulates stablecoins while creating a backdoor for a central bank digital currency.

“The Federal Reserve has been planning for years to develop a CBDC, and this will lead us toward a cashless society with digital currency that an authoritarian government could use against you by controlling your ability to trade,” Greene added.

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