In a recent interview, Do Kwon, Co-founder and CEO of Terraform Labs — as well as a director at Luna Foundation Guard (LFG) — talked about the limitations of centralized fiat-backed stablecoins.
Kwon’s comments were made during an interview with Kate Rooney, a technology reporter for CNBC.
According to a report by The Daily Hodl, Kwon said:
“I don’t think that there’s anything wrong, per se, with backing stablecoins in terms of dollars. It’s just that there are some limits to the things that you can do with the use cases of the so-called centralized stablecoins.
“The issue is that if you’re keeping a dollar in the bank account for every unit of stablecoin that’s issued, that stablecoin now has an issuer and an operator. What that means is that you have all the attendant compliance and custodian risks of having an operator and an issuer because, for instance, what happens if the company for some reason goes bankrupt? In that case, everybody that built interesting things on top of that stablecoin is now held hostage to the bankruptcy court…
“Or given that bank deposits are so easy to regulate, I think one of the things that we’ll start to see with centralized stablecoins is that there’s going to be massive compliance creep, which means that over time, you’re going to start to layer on things like KYC requirements and sort of vetting what types of applications can use a stablecoin, which isn’t necessarily appropriate for all use cases.“
Kwon believes that a decentralized stablecoin, such as TerraUSD ($USD), which is not backed by fiat reserves, does not suffer from the aforementioned limitations:
“A decentralized stablecoin, as something that is backed in native cryptocurrency like LUNA or Bitcoin, has the property that there is no issuer, there is no operator because anybody in the world can trade in a dollar’s worth of Bitcoin, can trade in a dollar’s worth of LUNA to issue one TerraUSD. This has the nice property that it makes decentralized finance truly decentralized.“
Kwon’s comments were made during an interview with Kate Rooney, a technology reporter for CNBC.
According to a report by The Daily Hodl, Kwon said:
“I don’t think that there’s anything wrong, per se, with backing stablecoins in terms of dollars. It’s just that there are some limits to the things that you can do with the use cases of the so-called centralized stablecoins.
“The issue is that if you’re keeping a dollar in the bank account for every unit of stablecoin that’s issued, that stablecoin now has an issuer and an operator. What that means is that you have all the attendant compliance and custodian risks of having an operator and an issuer because, for instance, what happens if the company for some reason goes bankrupt? In that case, everybody that built interesting things on top of that stablecoin is now held hostage to the bankruptcy court…
“Or given that bank deposits are so easy to regulate, I think one of the things that we’ll start to see with centralized stablecoins is that there’s going to be massive compliance creep, which means that over time, you’re going to start to layer on things like KYC requirements and sort of vetting what types of applications can use a stablecoin, which isn’t necessarily appropriate for all use cases.“
Kwon believes that a decentralized stablecoin, such as TerraUSD ($USD), which is not backed by fiat reserves, does not suffer from the aforementioned limitations:
“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.“