Curve founder Michael Egorov:
If you have something that is completely decentralized, then it is a program that runs autonomously on the chain, so you can't really do anything to it, and in principle, it is still completely traceable.
Tether is under investigation by the U.S., and the founder of Curve points out the issues with over-collateralized stablecoins.
Tether seems to be under investigation by authorities for violating U.S. sanctions-related laws and anti-money laundering laws. Although Tether CEO Paolo Ardoino refuted this claim, it highlights the legal risks of such real-world over-collateralized stablecoins.
(The Wall Street Journal: U.S. federal authorities are investigating Tether.)
Curve Finance founder Michael Egorov recently reiterated the issues with real-world over-collateralized stablecoins in an interview. Although Tether regularly publishes asset reserve proofs, Michael Egorov pointed out that the issues with over-collateralized stablecoins are fundamentally not about asset reserves, but rather the geopolitical risks brought about by government regulation.
Large stablecoins remain real-world over-collateralized stablecoins, Curve warns.
Over-collateralized stablecoins like Tether primarily hold 1:1 or even more real-world assets as proof of assets. This indicates that these companies are fully capable of meeting redemption requests to ensure that USDT can be exchanged at par with the dollar.
As a means of profit, Tether's basket of real-world assets typically consists largely of U.S. Treasury bonds. We previously reported that the amount of U.S. Treasury bonds held by Tether is among the top in the world. However, both holding U.S. Treasury bonds and dollars have a common issue; these assets must exist within a physical entity, and if the government demands a seizure, it could trigger a run risk.
(Tether's Q2 2024 accounting audit is out! What else can we see besides record profits?)
During an interview, Michael Egorov pointed out that both cash and U.S. Treasury bonds are subject to government seizure or asset freezes. This type of geopolitical situation poses the greatest risk to over-collateralized stablecoins, rather than the asset reserve risks that people often discuss.
Tether points out that the MiCA regulatory framework is very unfavorable for stablecoin issuers.
At the recent Plan B event held in Switzerland, Paolo Ardoino pointed out Tether's situation within the MiCA framework. For traditional banks, the so-called asset reserve ratio refers to the portion of assets required as collateral when holding a certain amount of currency. For over-collateralized stablecoin issuers, over-collateralization means needing a higher amount of assets than the amount of currency issued, which indicates that such business practices are inefficient.
MiCA requires stablecoin issuers to keep at least 60% of deposits in regulated banks, which can lend 90% of those assets to customers, posing a huge deposit risk to stablecoin companies in case of bankruptcy or bank failures.
Are algorithmic stablecoins the right path?
For Michael Egorov, the correct answer is algorithmic stablecoins. Despite Terra Luna facing significant failures in the previous cycle, Michael Egorov believes that only stablecoins are the correct solution for decentralization.
This article by Curve founder: Geopolitics and regulation remain the biggest issues for over-collateralized stablecoins, while algorithmic stablecoins are the right path, first appeared in Chain News ABMedia.
