In my personal opinion, the biggest risk for the Terra Stable Coins (besides the challenging task to maintain the 1:1 peg) is a regulatory risk.
Of course I hate this boring discussion, however, given its importance, it is something that can make or break the entire project. And of course, we love all things permissionless, trustless, decentralized; however, when it comes to payments, I believe that, for adoption, there will be some compromises to be made with the regulator.
Here, I am only looking at the KYC/AML/CFT point of view. I am not looking at the potential need for a USD stable coin issuer to become a chartered bank in the US since the Stable Act is not passed as a law yet and it could be argued whether an algorithmic stable coin would be subject to this rule.
I don’t believe that a kill switch kill switch that would freeze potentially dangerous addresses is a solution:
- it is a post-transaction remedy
- if implemented in a decentralised way, voting takes time
- if implemented using an oracle plugged to a forensic tool, I believe this would become very arbitrary
I don’t believe either that limiting wallets balances to something similar to the e-money thresholds (USD 1k, EUR 150) would do any good to the project adoption and growth
Possible solutions would gravitate toward integrating a form of automated KYC into the protocol
- solution 1: KYC data is stored in an NFT (unique token) with permissions and linked to wallet(s). The purpose is to preserve network anonymity while having the data in order to perform AML/CFT checks and controls by a designated third party.
- solution 2: Grant access to users who have on-ramped via AML-compliant counterparties
To be very honest, I am not a massive fan of any of this, however, for the good of the project and adoption of UST, I believe it is important to look at the compliance side of the business