Curve Founder: Geopolitics and Regulations 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, then it's a program running on the chain autonomously, so you can't really do anything about it, and in principle, it is still fully traceable.

Tether Under Investigation by US Authorities, Curve Founder Points Out Overcollateralization Issue with Stablecoins

It appears that Tether is under investigation by US authorities for alleged violations of US sanctions laws and anti-money laundering regulations. While Tether's CTO, Paolo Ardoino, has refuted these claims, it highlights the legal risks associated with real-world overcollateralized stablecoins.

The Wall Street Journal: US Federal Authorities Investigating Tether

Michael Egorov, the founder of Curve Finance, recently emphasized the issue of real-world overcollateralized stablecoins in an interview. Despite Tether regularly publishing asset reserve attestations, Egorov pointed out that the problem with overcollateralized stablecoins lies not in asset reserves but in the geopolitical risks brought by government regulations.

Major Stablecoins Still Pose Real-World Overcollateralization Risks, Curve Warns

Stablecoins like Tether rely on holding 1:1 or more real-world assets as collateral. This means these companies have the capacity to meet redemption requests to ensure USDT can be redeemed for US dollars.

As a means of profit, Tether's basket of real-world assets typically includes US Treasury bonds, with reports indicating that Tether holds one of the largest amounts of US Treasuries in the world. However, whether holding US bonds or dollars, these assets must physically exist somewhere, and if the government demands seizure, it could trigger a run on the assets.

Tether's Q2 2024 audit is out! Besides record profits, what else can we see?

In the interview, Egorov mentioned that whether it's cash or US bonds, they are subject to government seizure or asset freezing. He stated that geopolitical risks of this nature are the biggest threat of overcollateralized stablecoins, not the commonly discussed asset reserve risks.

Tether Highlights Disadvantages of MiCA Regulatory Framework for Stablecoin Issuers

During the recent Plan B event in Switzerland, Paolo Ardoino highlighted Tether's position within the MiCA framework. For traditional banks, the reserve ratio means holding a certain amount of currency with only a fraction of assets as collateral. However, for overcollateralized stablecoin issuers, having more assets than the amount of currency issued means this business practice is inefficient.

Under MiCA, stablecoin issuers are required to have at least 60% of deposits held in regulated banks, which can lend out 90% of these assets to customers, posing significant deposit risks to stablecoin companies in the event of bankruptcy or bank failure.

Is Algorithmic Stablecoin the Way Forward?

According to Michael Egorov, the correct answer lies in algorithmic stablecoins. Despite Terra Luna facing significant failures in the previous cycle, Egorov believes that stablecoins are the decentralized solution.