Nobel Economist Highlights Risks of Stablecoin Collapse for Taxpayers
Stablecoins, like those from Tether and Circle, aim to maintain parity with traditional currencies such as the US dollar. They are supported by reserves including cash and short-term bonds. However, Tirole cautions that their safety is not assured. Loss of confidence in these reserves could lead to mass redemptions, breaking the peg and undermining trust.
Key points include:
- The global stablecoin market has reached $284 billion.
- Analysts project growth to between $500 billion and $3.7 trillion by 2030.
- The US Treasury anticipates a $2 trillion market by 2028.
- Reserves, often composed of US Treasury bonds, can lose value if interest rates rise or due to inflation.
- A decline in asset values could lead to doubts about redeeming tokens at full value, resulting in potential bank runs.
- Tirole compared this risk to past financial crises, emphasizing the expectation of government intervention during a stablecoin collapse.
- He highlighted concerns regarding regulatory independence and resources, suggesting political ties may hinder enforcement.
- Stablecoins serve as a vital link between crypto and fiat currencies but carry inherent risks.