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Stablecoins are really 'central business digital currencies' — VC

Jeremy Kranz, founder of Sentinel Global, emphasizes the need for investors to exercise discernment regarding privately-issued stablecoins, as they present risks akin to central bank digital currencies (CBDCs) alongside unique challenges. He describes these stablecoins as 'central business digital currencies' that can allow issuers like banks to control users' funds. For instance, a dollar stablecoin from JP Morgan could enable them to freeze funds if regulations demand it. Furthermore, Kranz warns that overcollateralized stablecoins could face bank runs during mass redemption attempts, while algorithmic stablecoins bear the risk of market volatility inherent in crypto derivatives. He stresses the importance of understanding the risks connected to new financial instruments, suggesting that technology itself is neutral and outcomes depend on informed investor choices. The current stablecoin market capitalization exceeds $307 billion, attracting increased scrutiny and regulation, especially in light of US legislative actions aiming to regulate stablecoins and their ties to CBDCs, which critics argue could lead to authoritarian control over personal finances.

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