The stablecoin market, valued at over $280 billion, faces growing questions about oversight and potential risks in case of collapse.
Market Oversight and Growth
Economist Jean Tirole has expressed serious concerns regarding insufficient oversight of the rapidly growing stablecoin market. He noted that if these assets, seen as safe by many investors, were to collapse, the government could come under pressure to protect its interests. Goldman Sachs states that the stablecoin market could grow into trillions of dollars, attracting governmental attention.
Regulatory Framework and Risk Assessment
The GENIUS Act, enacted in July, requires digital assets pegged to the US dollar to maintain one-to-one backing through dollars or government bonds. However, Tirole criticized current oversight measures, stating that issuers may be tempted to invest in riskier assets for higher returns, increasing the probability of a crisis.
Government Bailout Concerns
Tirole also warned about potential government rescue scenarios. He emphasized that if stablecoins held in circulation were to collapse, the government would be pressured to intervene to protect depositors. This could result in multibillion-dollar bailouts similar to those seen during previous financial crises. Effective oversight could mitigate this risk, though Tirole noted that this is a 'big if' given the personal interests at play.
Tirole's warnings highlight the necessity for adequate regulations to balance the expansion of the stablecoin market against oversight systems to avoid potential threats to the financial system.
