Backing Stablecoins With Bitcoin or Altcoins Eliminates This Massive Risk, Says Terra (LUNA) Founder Do Kwon

Terra (LUNA) founder Do Kwon says that backing stablecoins with the US greenback could restrict the use circumstances of those belongings.

In a brand new interview on CNBC, Kwon identifies the potential dangers that include pegging stablecoins, that are crypto belongings backed by a reserve asset resembling fiat or one other cryptocurrency to supply worth stability towards the greenback.

“I don’t assume that there’s something mistaken, 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 difficulty is that should you’re preserving 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 purpose goes bankrupt? In that case, everyone that constructed fascinating issues on high of that stablecoin is now held hostage to the chapter court docket…

Or on condition that financial institution deposits are really easy to control, I believe one of many issues that we’ll begin to see with centralized stablecoins is that there’s going to be huge 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 kinds of purposes can use a stablecoin, which isn’t essentially acceptable for all use circumstances.”

Kwon says that Bitcoin (BTC) and altcoins resembling LUNA could eradicate the dangers tied with centralized stablecoins, or these backed by conventional foreign money.

“A decentralized stablecoin, as one thing that’s backed in native cryptocurrency like LUNA or Bitcoin, has the property that there isn’t any issuer, there isn’t any operator as a result of anyone on the planet can commerce in a greenback’s value of Bitcoin, can commerce in a greenback’s value of LUNA to difficulty one TerraUSD. This has the great property that it makes decentralized finance really decentralized.”

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https://dailyhodl.com/2022/04/14/backing-stablecoins-with-bitcoin-or-altcoins-eliminates-this-massive-risk-says-terra-luna-founder-do-kwon/

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