Following the new regulatory framework designed by the US on stablecoins, we can expect widespread adoption of this new form of currency and significant growth in the stablecoin industry: after all, this was precisely the intention of the Genius Act (see our in-depth analysis of July 25, 2025).
It is inevitable that there will be controversy or alarm bells raised from many quarters. In an article published on September 1, 2025, in the FT, Nobel Prize winner Jean Tirole offers some food for thought. To fully understand it, a brief overview of monetary aggregates is necessary:
• M0 (or monetary base), which includes legal tender, i.e., banknotes and coins that must be accepted as payment by law, and financial assets that can be converted into legal tender quickly and without cost, consisting of central bank liabilities to banks (and, in some countries, also to other entities) essentially attributable to the reserves that they entrust to the former;
• M1 (or primary liquidity), which includes banknotes and coins in circulation (cash in circulation) and therefore a portion of M0 as defined above, as well as other financial assets that can be used as a means of payment, such as current account deposits, bank or postal deposits, if transferable on demand by check, and traveler’s checks; banknotes and coins deposited, and therefore not in circulation, are not included in this aggregate in order to avoid double counting: once as banknotes and coins, and again as current account deposits;
• M2 (or secondary liquidity), which includes M1 plus all other financial assets and bank or postal deposits which, like currency, have high liquidity and a certain value, redeemable with up to three months’ notice, and those with a maturity of up to two years;
• M3, which includes M2 plus all other financial assets that, like currency, can serve as a store of value; this is essentially the amount of “bank repurchase agreements,” short-term bonds and government securities, and “money market fund” shares.
These financial assets are practically perfect substitutes for currency, so theoretically (and also practically) they can be used as collateral for the issuance of stablecoins. A digital dollar (regardless of the issuer) must be backed by a fiat dollar or the corresponding value of one of the M1, M2, or M3 aggregates (or a combination of the three).
However, the Genius Act does not require stablecoins to be backed only by the monetary aggregates we have listed, but they can also be backed by other assets such as gold, commodities, or even cryptocurrencies. If a stablecoin issuer can use a multitude of financial instruments to back its issuance, in addition to monetary aggregates, it will seek to maintain a collateral portfolio that yields as much as possible or—in the case of a bank (because banks can be issuers of their own stablecoins under the Genius Act)—to make the assets on deposit profitable, for example by lending them out.
Professor Tirole’s fear is therefore the classic deterioration of collateral. If stablecoin issuers end up holding increasingly risky assets in order to make a profit, doubts could arise about the actual stability of the collateral among stablecoin holders, triggering the classic run on fiat currency, or the even more classic “run on the banks” when it is the bank guarantee that is called into question.
The remedy proposed by the Nobel Prize winner to mitigate this risk is always the same: prudential supervision of issuers, which in his opinion is ruled out a priori given the conflict of interest involving many members of the administration and the establishment who would have to impose disadvantageous regulations: disadvantageous for themselves, that is.
The danger does not appear imminent because US government bonds still offer good yields, having to finance a public debt of enormous proportions, which is precisely why it is worrying. However, in the not-too-distant future, this risk could clearly become apparent and difficult to manage because limiting the type of assets that can be held as collateral means limiting the earning potential for this business, which could become marginal and therefore useless. On the other hand, not imposing restrictions means allowing this new sector to proliferate to the point where it reaches worrying proportions if accompanied by unsustainable levels of risk.
Ultimately, as we explained in our in-depth analysis of July 18, 2025, there is always an element of unsustainable debt at the root of financial bubbles. The example of subprime mortgages speaks for itself: financing for the entire value of the asset to be acquired (given as collateral for the loan) was allowed—if not actively encouraged—leading most property owners into extreme debt that they could not repay in the event of a collapse in property prices. In fact, it was made even worse by allowing additional consumer loans to be granted, secured by the increase in property values. Here, it is not very different: stablecoins are, in fact, debt securities and therefore a liability for issuers, secured by assets that can lose a significant portion of their value, making it difficult to redeem the stablecoins. Fortunately, what is missing is a recursive mechanism that leads stablecoin holders to use them to purchase the basket of assets used to guarantee the issuance of the stablecoins themselves. Hopefully, this mechanism will not be provided by tokenization in the future.
Disclaimer
This post expresses the personal opinion of the Custodia Wealth Management staff who wrote it. It is not investment advice or personalized advice and should not be considered an invitation to carry out transactions on financial instruments.
