According to Jeremy Kranz, founder and managing partner of venture capital firm Sentinel Global, investors should exercise “prudence” when considering privately issued stablecoins, which carry all the risks of a central bank digital currency (CBDC) as well as their own unique risks.

Kranz called privately issued stablecoins a “central digital business currency” that includes all the surveillance, backdoor, programmability and control functions of a CBDC. He told Cointelegraph:

“A central business digital currency isn’t necessarily that different. So if JP Morgan issues a dollar stablecoin and controls it through the Patriot Act or whatever comes along in the future, they could freeze your money and withdraw the money from your bank account.”

Overcollateralized stablecoin issuers that back their blockchain tokens with cash and short-term government securities could be subject to a “bank run” if too many holders try to redeem the tokens at the same time, Kranz added.

Algorithmic and synthetic stablecoins, which rely on software or sophisticated transactions to maintain a peg to the dollar, also have their own risks and counterparty dependencies, such as the risk of detachment from volatility or flash crashes in crypto derivatives markets, Cointelegraph said.

Kranz said technology is a neutral tool that can be used to build a better financial future for humanity or can be misused, but the results depend on whether individual investors read the fine print, understand the risks and make informed choices about the financial instruments they choose.

Related: S&P Global uses Chainlink to assess the ability of stablecoins to maintain their peg

There are lots of opportunities and threats

The rapid pace of innovation in stablecoins, cryptocurrencies and tokenization technologies is reminiscent of “10 black swan events,” Kranz told Cointelegraph, emphasizing that both opportunities and risks will arise from rapid and disruptive technological advances.

According to him, the stablecoin market capitalization crossed the $300 billion milestone in October data from DeFiLlama.

Stablecoins have seen increased interest following the passage of the GENIUS Stablecoin Act in the United States, prompting mixed reactions from lawmakers.

Marjorie Taylor Greene, a U.S. representative from Georgia, called the bill a CBDC Trojan horse. “This bill regulates stablecoins and provides a backdoor central bank digital currency,” she said in a July 15 letter. post.

“The Federal Reserve has been planning a CBDC for years, and this will open the door to moving you into a cashless society and into a digital currency that can be used against you by an authoritarian government that controls your ability to buy and sell,” she added.

Warehouse: The Bitcoin vs stablecoins showdown looms as the GENIUS Act approaches