Nobel Laureate Slams Stablecoin Oversight Gaps

Nobel Prize-winning economist Jean Tirole has reportedly cautioned against the improper supervision of stablecoins.

In an interview with the Financial Times (FT) published Tuesday (Sept. 2), Tirole said he was “very, very worried” about stablecoin oversight and the possibility of a run by depositors fueled by doubts about the underlying reserve assets to which the digital tokens were pegged.

As the FT notes, stablecoins are expected to grow in popularity following new U.S. regulations allowing banks to introduce their own dollar-pegged coins. The worldwide use of stablecoins has climbed to around $280 billion.

Although they could be seen by retail users as “a perfectly safe deposit,” stablecoins could become a source of losses and lead to calls for costly government-led bailouts, said Tirole, who was awarded the Nobel Prize for economics in 2014.

He also cautioned that backing stablecoins with U.S. government bonds could become unpopular due to the underlying assets’ relatively low yields, pointing to previous instances where the returns of Treasury debt were “negative for a number of years” and payouts after inflation were even lower.

Stablecoin issuers could thus be caught up in the “temptation” to invest in different assets that “carry higher returns and are riskier,” Tirole told the FT.

Writing about the growing popularity of stablecoins last week, PYMNTS noted a larger structural challenge facing the assets.

“Stablecoins still rent space in a trilemma of privacy, compliance and transaction throughput. Innovations like zero-knowledge proofs and KYC-enabled pools offer partial relief, but scale and interoperability remain constraints,” that report said.

Minus a breakthrough, incremental, targeted deployments might be the most viable path forward, PYMNTS added, pointing out that stablecoins have gone from a “speculative experiment” to foundational utility.

“Whether stablecoins evolve into a trusted rails system or a cautionary flash remains to be seen, but plumbing matters more than yield, and infrastructure defines viability,” the report said.

Also last week, PYMNTS examined among concerns within the banking world about the GENIUS Act, which governs stablecoins.

The legislation is worded in a way that could let customers earn interest via a loophole, opening the door for crypto exchanges, not issuers to indirectly offer interest and rewards to holders of stablecoins issued by companies like Circle or Tether.

“The banking sector’s argument has been blunt: if stablecoin issuers begin paying interest, Americans could abandon bank deposits in search of better yield,” that report said.

“The specter of deposit flight is one that bank lobbyists know resonates with regulators and lawmakers, particularly in a post-Silicon Valley Bank environment where confidence in bank stability remains fragile.”