Do Kwon was correct; banks pose a risk to fiat-backed stablecoins – CZ
The 2022 bear market was sparked by the death spiral of the Terra ecosystem, which resulted in losses in the billions, damaged investor confidence, and increased regulatory scrutiny of cryptocurrencies. Yet according to Binance CEO Changpeng “CZ” Zhao, traditional banks pose a threat to stablecoins that are often pegged 1:1 with fiat currencies like the U.S. dollar. This is because of the recent de-pegging of Circle’s USD Coin.
On March 11, Circle announced that Silicon Valley Bank (SVB) had rejected its request to withdraw $3.3 billion. In response to the information, the cryptocurrency market sold off its USDC holdings, which led to the loss of the peg for the stablecoin backed by the dollar. SVB’s direct engagement in lowering USDC values led CZ to accuse banks of posing a greater risk to stablecoins.
A forum member who agreed with CZ’s viewpoint proposed the concept of a stablecoin backed by cryptocurrency. In response, CZ mentioned Do Kwon’s now-defunct algorithmic stablecoin, saying:
“Do Kwon actually have the right idea, but just failed miserably on execution.”
Furthermore, without taking cryptocurrency into account, CZ claims that fiat currencies are risky.
Although Kwon has been the target of legal proceedings from many places, the businessman is still living in a refuge that is hidden from the law.
Several investors sold their holdings in order to protect themselves from losses after anticipating the likelihood of USDC de-pegging. Yet, one of these investors lost more than $2 million as a result of a rash choice.
The investor decided to use a “questionable” strategy, which led to a maximal extractable value (MEV) bot that made $2.045 million in profit after paying $45 in gas and $39,000 in MEV bribes, as opposed to selling their USDC holdings in a liquidity pool for 6% slippage.
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