Founder of Curve Geopolitics and Regulation Remain the Biggest Issues for Overcollateralized Stablecoins Algorithmic Stablecoins are the Way Forward
Curve Founder Michael Egorov:
If you have something that is completely decentralized, it is a program that operates autonomously on-chain, so you can’t really do anything about it, and in principle, it is still completely traceable.
Tether Under Investigation in the U.S.; Curve Founder Highlights Problems with Over-Collateralized Stablecoins
Tether appears to be under investigation by authorities for violating U.S. sanctions-related laws and anti-money laundering regulations. Although Tether’s CEO Paolo Ardoino has refuted this claim, it nonetheless highlights the legal risks associated with real-world over-collateralized stablecoins.
(The Wall Street Journal: U.S. federal authorities are investigating Tether)
Recently, Curve Finance founder Michael Egorov reiterated the issues surrounding real-world over-collateralized stablecoins in an interview. Despite Tether regularly publishing asset reserve attestations, Michael Egorov pointed out that the problem with over-collateralized stablecoins is not fundamentally about asset reserves, but rather the geopolitical risks posed by government regulations.
Major Stablecoins Still Represent Real-World Over-Collateralized Stablecoins; Curve Raises Alarm
Over-collateralized stablecoins like Tether primarily rely on holding real-world assets in a 1:1 ratio or even more as asset backing. This means these companies are fully capable of meeting redemption requests to ensure that USDT can be exchanged equivalently for U.S. dollars.
As a profit-making mechanism, Tether’s basket of real-world assets typically consists largely of U.S. Treasury securities; we previously reported that the amount of U.S. Treasuries held by Tether is among the largest in the world. However, whether holding U.S. Treasuries or U.S. dollars, there is a common issue: these assets must be held within a physical entity, and if the government demands seizure, it could trigger a run on the assets.
(Tether’s Q2 2024 audit results are out! What else can we see besides record profits?)
In the interview, Michael Egorov pointed out that cash or U.S. Treasuries are both susceptible to government seizure or asset freezing. Such geopolitical factors represent the greatest risk for over-collateralized stablecoins, rather than the asset reserve risks that people often discuss.
Tether Points Out that MiCA Regulatory Framework is Highly Disadvantageous for Stablecoin Issuers
At the recent Plan B event held in Switzerland, Paolo Ardoino highlighted Tether’s situation within the MiCA framework. For traditional banks, the so-called asset reserve ratio means that if a certain amount of currency is held, only a portion of the assets is required as collateral. For over-collateralized stablecoin issuers, over-collateralization means requiring a higher amount of assets than the amount of currency issued, indicating that this business practice is inefficient.
MiCA requires stablecoin issuers to deposit at least 60% of their reserves in regulated banks, which can lend out 90% of those assets to customers, exposing stablecoin companies to significant deposit risks in the event of bankruptcy or bank failures.
Are Algorithmic Stablecoins the Right Path?
For Michael Egorov, the correct answer is algorithmic stablecoins. Despite the massive failures faced by Terra Luna in the previous cycle, Michael Egorov believes that only stablecoins can be the correct decentralized solution.
