Cardano’s [ADA] co-founder, Charles Hoskinson, in a recent YouTube stream on the 13th of February, highlighted how legacy financial institutions encroaching on crypto may compromise its fundamental ethos.
As critical concerns in the crypto space continue to mount, asset-backed stablecoins have asserted dominance in the market, often overlooked by mainstream cryptocurrency enthusiasts.
Hoskinson also criticized the recent enthusiasm surrounding spot Bitcoin [BTC] ETFs and expressed apprehension about the potential expanding influence of Wall Street.
He said,
“The more we move back to legacy systems, the more we realize we’ve lost control.”
Risks associated with asset-backed stablecoins
While addressing the dominance and centralized nature of asset-backed stablecoins, Hoskinson emphasized,
“Asset-backed stablecoins have two properties: a central issuer subject to regulation and cannot go fractional.”
He also outlined the impact of stablecoins, their influence over DeFi ecosystems and how can they affect outcomes during blockchain forks, remarking,
“Stablecoins cannot exist on multiple forked chains without compromising their backing.”
Algorithmic stablecoins — a potential solution?
Charles Hoskinson juxtaposed this with algorithmic stablecoins, arguing that they aligned better with the decentralized ethos of cryptocurrency. He highlighted,
“Algorithmic stablecoins are an essential thing that we need to look into.”
Algorithmic stablecoins are governed by on-chain algorithms that are free from the influence of a central authority that could skew outcomes in their favor.
On the contrary, Colin LeMahieu, creator of Nano [XNO], criticized algorithmic stablecoins, stating,
“Having a reliable algorithmic stablecoin is either impossible or, at the very least, “unfair,” as the treasury holds asymmetric price information”
Thus, if cryptocurrencies lose their decentralized nature, they might start looking exactly like the traditional financial systems they initially aimed to change.
