Terra (LUNA) founder Do Kwon says that backing stablecoins with the US greenback could restrict the use circumstances of those property.
In a brand new interview on CNBC, Kwon identifies the potential dangers that include pegging stablecoins, that are crypto property backed by a reserve asset akin to fiat or one other cryptocurrency to supply worth stability in opposition to the greenback.
“I don’t assume that there’s something improper, per se, with backing stablecoins when it comes to {dollars}. It’s simply that there are some limits to the issues that you are able to do with the use circumstances of the so-called centralized stablecoins.
The challenge is that in the event you’re protecting a greenback within the checking account for each unit of stablecoin that’s issued, that stablecoin now has an issuer and an operator. What meaning is that you’ve all of the attendant compliance and custodian dangers of getting an operator and an issuer as a result of, as an illustration, what occurs if the corporate for some cause goes bankrupt? In that case, everyone that constructed fascinating issues on high of that stablecoin is now held hostage to the chapter courtroom…
Or on condition that financial institution deposits are really easy to manage, I believe one of many issues that we’ll begin to see with centralized stablecoins is that there’s going to be large compliance creep, which signifies that over time, you’re going to begin to layer on issues like KYC [know your customer] necessities and form of vetting what varieties of functions can use a stablecoin, which isn’t essentially acceptable for all use circumstances.”
Kwon says that Bitcoin (BTC) and altcoins akin to LUNA could eradicate the dangers tied with centralized stablecoins, or these backed by conventional forex.
“A decentralized stablecoin, as something that is backed in native cryptocurrency like LUNA or Bitcoin, has the property that there is no issuer, there is no operator because anybody in the world can trade in a dollar’s worth of Bitcoin, can trade in a dollar’s worth of LUNA to issue one TerraUSD. This has the nice property that it makes decentralized finance truly decentralized.”
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