As stablecoin’s momentum continues to surge worldwide, 2014 Nobel Prize-winning economist Jean Tirole recently warned about the risks of a potential financial crisis due to the “insufficient supervision” in the sector.
On Monday, Jean Tirole shared his concerns about inadequate stablecoin oversight amid the recent momentum in the sector, affirming that he was “very, very worried” about the lack of sufficient supervision and the potential hidden risks that it could entail.
He also cautioned that backing stablecoins with US government bonds could become unpopular due to the underlying assets’ relatively low yields, noting previous cases when the returns of Treasury debt were negative for several years and payouts after inflation were even lower.
Notably, digital assets pegged to the US dollar are required to be backed on a one-to-one basis by US dollars or Treasury bills after the enactment of the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act in July.
Donovan considers that “stablecoins are more about redistributing the money supply,” adding that “someone selling Treasury bills to buy stablecoins, which invest the money in Treasury bills, does not change demand for U.S. debt instruments.”
Tirole considers that stablecoin issuers could be “lured into the temptation” to invest in other assets that “carry higher returns and are riskier.” The higher risk would increase the chance of a potential crisis, triggering a run on the tokens.
“If it is held by retail or institutional depositors who thought it was a perfectly safe deposit, then the government will be under a lot of pressure to rescue the depositors so they don’t lose their money,” he detailed, adding that only a few uninsured depositors of traditional banks ever faced losses over the past decades.
Nonetheless, the US Treasury Secretary considers that the recent regulatory advancements are sufficient to drive the sector’s growth. “The GENIUS Act provides the fast-growing market with the regulatory clarity it needs to grow into a multitrillion-dollar industry,” Bessent said in July.
