The Nobel laureate says “insufficient supervision” leaves dollar‑pegged tokens vulnerable to runs—and taxpayers exposed—unless regulators move fast.

Jean Tirole, the Nobel Prize–winning economist, has issued one of the starkest warnings yet about the fast-growing world of stablecoins. In an interview published at the end of August, he argued that “insufficient supervision” of dollar‑pegged tokens could leave governments no choice but to mount multibillion‑dollar rescues if those tokens unravel during a future financial crisis. Coming from a scholar known for his work on market design and incentives, the message is pointed: when something is sold as cash‑like but isn’t supervised like cash, the bill tends to land with the public.

Stablecoins—digital tokens designed to hold a steady value, usually one US dollar—have become a cornerstone of crypto trading and, increasingly, a bridge to mainstream finance. Their combined market value is now measured in the hundreds of billions of dollars, dominated by issuers that say they hold short‑dated US Treasuries and cash‑equivalents in reserve. That structure is meant to be reassuring. Yet history shows that the promise of par convertibility can be perilous if investors doubt the assets backing that promise.

Tirole’s concern centers on run dynamics. If confidence falters—because reserve assets fall in price, market liquidity dries up, or an issuer reaches for yield in riskier instruments—holders rush to redeem. Redemptions force liquidations, which can push prices down further, prompting more redemptions. This vicious circle is familiar from older episodes, including the freezing of parts of the money‑market fund industry during the 2008 crisis and the dash‑for‑cash in 2020. Without clearly pre‑funded liquidity lines, rigorous supervision and transparent audits, the temptation and the ability to run remain.

The warning lands just as policymakers redraw the rulebook. In July, the United States enacted the GENIUS Act, the country’s first federal framework for payment stablecoins. It confines issuance to approved entities—bank subsidiaries, OCC‑supervised firms and certain state‑regulated issuers—and subjects them to anti‑money‑laundering obligations and reserve requirements. Proponents hail overdue clarity; skeptics say gaps remain, from the treatment of interest to the contours of emergency support.

Across the Atlantic, Europe’s Markets in Crypto‑assets framework (MiCA) is phasing in obligations for so‑called e‑money tokens and asset‑referenced tokens, giving national supervisors and ESMA a stronger hand. The European Central Bank has urged caution, warning that large foreign‑currency stablecoins could undermine monetary sovereignty and amplify stress in euro‑area markets. Global bodies such as the Bank for International Settlements have likewise flagged systemic risks if stablecoins keep scaling without robust safeguards.

Politics adds another wrinkle. A growing chorus in Washington argues that well‑regulated stablecoins could buttress demand for US Treasuries and lower payment costs. Banking groups, for their part, fear deposit flight if crypto platforms can offer attractive yields on token balances. In Brussels and Frankfurt, the debate touches on strategic autonomy: should Europe tolerate widespread use of private dollar tokens, or double down on a digital euro and tighter guardrails? These cross‑currents make coherent, globally compatible supervision harder just as the stakes rise.

Behind the policy sparring lies a simple balance‑sheet question. Most leading stablecoins say they hold short‑maturity Treasury bills, overnight repos and cash. Those are high‑quality instruments—but they still carry interest‑rate, liquidity and governance risks. If an issuer stretches into longer durations to pick up yield, or concentrates exposures with a small set of counterparties, the cushion can erode quickly under stress. Even with pristine assets, operational failures—from cyber incidents to a breakdown in custody—can trigger loss of confidence.

Tirole’s deeper worry is moral hazard. If the public comes to believe that governments will step in to “save the peg” in a crisis—because spillovers to money markets or payment systems are deemed intolerable—then private issuers capture the upside in calm times while the downside is socialized. The result is a shadow banking system by another name, with risk migrating to the least regulated nodes until a shock reveals where the backstops truly are.

Avoiding that trap requires more than slogans about “same activity, same risk, same rules.” In practice, it means real‑time transparency of reserves; hard limits on duration and concentration; daily liquidity buffers; segregation of client assets; independent, public audit trails; and credible, pre‑funded liquidity facilities financed by the industry itself. It also means clear resolution regimes—so that if an issuer fails, redemptions can be orderly, losses are borne by risk‑takers, and taxpayers are spared.

Cross‑border coordination is essential. Stablecoins are natively global: a token minted in one jurisdiction slices through payment apps and exchanges in dozens more. Unilateral bans tend to be porous; permissive regimes can export volatility. That argues for minimum international standards on disclosure, custody, and redemption, as well as mechanisms to prevent regulatory arbitrage between bank‑issued tokens, nonbank issuers and tokenised deposits. Absent coordination, crises will find the cracks.

Markets, too, must adjust their priors. A token’s brand is not a guarantee; a published attestation is not a full audit; a narrow legal promise can leave gaps in practice. Investors should scrutinize whether reserves are bankruptcy‑remote, whether redemption rights are unconditional for retail users, and whether intraday liquidity is assured during market stress. Exchanges and payment platforms that embed stablecoins into customer wallets should adopt conservative safeguards as if they were holding client cash—not just a digital claim on someone else’s balance sheet.

What about innovation? Tirole is not arguing against better payments or programmable finance. The point is that durable innovation is built on resilient plumbing. If stablecoins are to play a lasting role in commerce—beyond speculative trading—then compliance, governance and risk management must be treated as features, not bugs. Silicon‑speed growth without supervisory depth invites the very crack‑ups that set the sector back.

A plausible stress path in the next downturn runs like this: risk assets sell off; liquidity thins; questions surface about a large issuer’s reserve mix; redemptions accelerate; funds move across borders at platform speed; Treasury bill markets wobble; policymakers weigh whether to extend central bank facilities or Treasury backstops to entities beyond the banking perimeter. At that point, labels matter less than linkages. The question will be who ultimately provides the lender‑of‑last‑resort function—and on what terms.

The world has a narrow window, Tirole suggests, to answer that question before the next shock provides its own answer. The framework now emerging in the United States and the EU is an important start. But supervision must be continuous, technical and unsentimental. If the sector wants the mantle of safety, it must accept the burdens that come with it. Otherwise, when the music stops, it will be the public once again picking up the tab.

For all the heat around the topic, this is not a fight between “old finance” and “new finance.” It is a test of whether we can fuse useful technological advances with the institutional guardrails that make money feel, and be, safe. On that score, Tirole’s warning is less a prophecy of doom than a call to build the right architecture—before we learn the hard way what was missing.