Curve founder Michael Egorov:
If you have something completely decentralized, then it is a program that runs autonomously on the chain, so you can’t really do anything about it, and in principle, it is still completely traceable.
Tether under US investigation, Curve founder points out issues with over-collateralized stablecoins
Tether seems to be under investigation by authorities for violating US sanctions and anti-money laundering laws. While Tether CEO Paolo Ardoino has rebutted this claim, it highlights the legal risks associated with real-world over-collateralized stablecoins.
(The Wall Street Journal: US federal authorities are investigating Tether)
Curve Finance founder Michael Egorov recently emphasized the issues with real-world over-collateralized stablecoins in an interview. Despite Tether regularly publishing asset reserve proofs, Michael Egorov pointed out that the problem with over-collateralized stablecoins is not in asset reserves, but in the geopolitical risks brought by government regulation.
Bulk stablecoins are still real-world over-collateralized stablecoins, Curve warns
Stablecoins like Tether are mainly backed by holding 1:1 or even more real-world assets as asset certificates. This means that these companies have the capability to meet redemption requests to ensure USDT can be exchanged for dollars at par.
As a profit mechanism, Tether’s basket of real-world assets usually consists of US bonds, with reports earlier stating that Tether holds one of the largest amounts of US bonds in the world. However, whether holding US bonds or dollars, these assets must exist physically, and if the government demands seizure, it will trigger a run risk.
(Tether’s 2024 Q2 audit certification is out! What else can be seen besides record profits?)
During an interview, Michael Egorov pointed out that both cash and US bonds are subject to government seizure or asset freeze. This type of geopolitical risk is the biggest risk for over-collateralized stablecoins, rather than the asset reserve risk people talk about.
Tether points out that the MiCA regulatory framework is highly unfavorable for stablecoin issuers
During the recent Plan B event held in Switzerland, Paolo Ardoino highlighted Tether’s situation in the MiCA framework. For traditional banks, the so-called reserve ratio means that if a certain amount of currency is held, only a portion of assets are needed as collateral. For over-collateralized stablecoin issuers, over-collateralization means needing a higher amount of assets than the quantity of currency issued, indicating inefficiency in this business practice.
MiCA requires stablecoin issuers to keep at least 60% of deposits in regulated banks, with these banks able to lend 90% of those assets to customers, posing significant deposit risks to stablecoin companies in the event of bankruptcy or bank failure.
Is algorithmic stablecoins the way forward?
For Michael Egorov, the correct answer is algorithmic stablecoins. Despite Terra Luna facing significant failures in the previous cycle, Michael Egorov believes that stablecoins are the decentralized correct answer.