IMF head says stablecoins not backed by assets are pyramid schemes

One of the biggest recent stories in cryptocurrency was the downward spiral of supposed “stablecoin” TerraUSD and its related cryptocurrency Luna, with the latter hitting an actual $0 USD value. Following that event, International Monetary Fund lead Kristalina Georgieva spoke out on the matter, making the claim that stablecoin cryptocurrencies that are unbacked by actual assets should be considered pyramid schemes.

Georgieva shared this intense opinion on stablecoins in a recent presser, as reported by CNBC. Georgieva spoke on the matter following the spiraling collapse of TerraUSD and related cryptocurrency Luna, which billions of dollars in value wiped out from the cryptocurrency market with Luna hitting a $0 USD value.

“When we look at stablecoins this is the area where the big mess happened,” Georgieva stated in a recent CNBC-moderated economic panel. “If a stablecoin is backed with assets, one to one, it is stable. When it is not backed with assets, but it is promised to deliver 20% return, it’s a pyramid.”

The crashes of TerraUSD and Luna were the inciting incident that drew Kristalina Georgieva's harsh opinion on unbacked stablecoin during a recent economic panel.

Stablecoins like TerraUSD are based on an algorithm and meant to be able to stay 1-to-1 with real-world currency such as the US Dollar. Unfortunately, that was not the case and TerraUSD crashed hard, leaving many investors holding the bag.

Kristalina Georgieva’s caution against stablecoins is based on the fact that where many cryptocurrencies are backed by some assets or fiat currency, currencies like TerraUSD are based entirely on an algorithm with little in the way of supporting assets to back them up.

Cryptocurrencies and NFTs continue to be a hot-button investment topic, especially as major companies invest more into the market, such as GameStop’s upcoming NFT marketplace and crypto wallet. Nonetheless, the risk of hundreds of thousands of dollars going up in smoke or appearing out of nowhere as the market ebbs and flows is real. That volatility doesn’t seem to be going anywhere anytime soon and we’re not likely to see harsh opinions from financial leaders such as IMF’s Kristalina Georgieva change on the matter anytime soon.