Nobel Prize winner warns: Insufficient regulation of stablecoins may force governments to invest heavily to save the market.

According to the Financial Times, Nobel laureate Jean Tirole warned that the current regulation of stablecoins is insufficient. If these tokens collapse in a future financial crisis, the government might be forced to invest billions of dollars in bailouts. In an interview, the 2014 Nobel Prize winner expressed that he is very, very concerned about the regulation of stablecoins and that if there are doubts about the underlying reserve assets tied to these digital tokens, depositors might run on the bank.

Tirole stated that although stablecoins may be viewed as absolutely safe deposits in the eyes of ordinary users, they could become a source of losses and trigger calls for the government to spend huge sums on bailouts. He also warned that the practice of using U.S. Treasury bonds as collateral for stablecoins may become unpopular, as the yields on these underlying assets are relatively low. Therefore, stablecoin issuers may be tempted to invest in other assets that offer higher returns but come with greater risks.