Stablecoins provide a false sense of security. They give the impression to the uninitiated and/or uncaring that a particular coin is pegged to the U.S. dollar, or an equivalent of the dollar in terms of value and stability, and that if you want to convert your stablecoin to dollars, you can do so easily and instantaneously. Yet, they do no such thing, as demonstrated by the recent collapse of Terra and its TerraUSD stablecoin and LUNA token and also made clear in September 2008 by the collapse of the Reserve Primary Fund money market fund during the height of the global financial crisis.
Powers On… is a monthly opinion column from Marc Powers, who spent much of his 40-year legal career working with complex securities-related cases in the United States after a stint with the SEC. He is now an adjunct professor at Florida International University College of Law, where he teaches a course on “Blockchain & the Law.”
So, I now unequivocally state what is obvious: If you are an owner of or investor in any cryptocurrencies, you need to understand this lack of protection and safeguard the portion of your wealth held in digital assets. You can protect these assets by keeping them in cold digital wallets, on exchanges registered with the United States Securities and Exchange Commission, or with another entity regulated by the SEC, CFTC or Treasury. Even entities and exchanges with BitLicenses, such as Coinbase and Gemini, may not provide sufficient protection.
As I write this column, UST has a value of about $0.07. One month ago, it was one of the top 10 cryptocurrencies by market cap and maintained a steady value of $1. It was perceived as a reliable, “safe” cryptocurrency for trading activities, where transaction risks were eliminated and liquidity was provided to the trading parties, both for trading occurring on centralized exchanges and decentralized platforms. Not anymore.
Although some may disagree, cryptocurrencies are speculative in both…
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