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- Founder of Terra (LUNA) Do Kwon voiced his opinion on stable coins. According to him, backing stablecoins with US dollars can limit the use-cases of these crypto assets.
- Kwon explains when a stablecoin is pegged with a dollar, it comes with an issuer and an operator.
- Kwon believes that decentralized crypto assets such as Bitcoin and Luna can eliminate the risks tied with centralized stable coins.
Do Kwon, the founder of Terra (LUNA) says pegging stablecoins with the US dollar could mitigate the use-cases of these digital assets.
Kwon points out the various risks associated with backing stablecoins in a CNBC interview. Stablecoins are essentially digital assets that are pegged by a reserve asset like fiat or another cryptocurrency in order to provide price stability against the dollar.
The Terra founder explains that backing stablecoins with dollars is not necessarily wrong.
According to Kwon, the things regarding the use-cases of the so-called centralized stablecoins get limited.
Kwon explains that the problem occurs when a dollar is placed in the bank account for every stablecoin dollar and the stablecoin gets an issuer and an operator. This means that the owner of stablecoin has to face compliance and custodian risks that come with having an operator and issuer. For instance, if a company becomes bankrupt due to any reason, then the things developed on that stablecoin would be held hostage to the bankruptcy court.
Considering the bank deposits are quite easy to regulate, then there is the probability of the stablecoin becoming “centralized compliance creep,” meaning there going to be additional layers like KYC requirements and what kind of applications can leverage stablecoins, and that is not quite appropriate for all use-cases.
Kwon then says Bitcoin (BTC) and altcoins like LUNA can get rid of the risks associated with centralized stablecoins, or those pegged by fiat currency.
Kwon explains that there will be no issuer, no operator linked with a decentralized stablecoin which is a stablecoin backed in native cryptocurrencies such as LUNA or Bitcoin since any individual regardless of where they belong can trade in dollar’s worth of Bitcoin or dollar’s worth of LUNA for issuing one TerraUSD. This is what makes “decentralized finance truly decentralized.”
Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.
