In the vast realm of digital finance, stablecoins are integrating into the capillaries of the global economy at an unprecedented speed. However, just as their application becomes increasingly widespread, a statement by Paul Krugman, the 2008 Nobel Prize in Economics laureate, cuts through the night sky like lightning, casting a shadow over this thriving field. He bluntly stated that stablecoins have "no obviously useful function" and might become a "breeding ground for crime", potentially even harboring risks of triggering the next financial crisis. This statement immediately sparked a massive controversy in the crypto world, with leading figures in the digital asset domain rushing to refute it.
Is this fierce clash spanning traditional economics and the digital frontier mere alarmism or a prophetic warning? To unravel this mystery, we must part the mist and delve into the essence of stablecoins, their mission, and potential profound impacts.
Krugman's Concerns: Why Equate Stablecoins with "Shadow Banking"?
Professor Krugman's critique carries his profound insight into history and the fragility of financial systems. He compares stablecoin issuers to the "ante-bellum banks" of 19th-century America. During that period, before the federal government unified currency issuance, private banks independently issued their own banknotes with varying redemption capabilities, ultimately leading to widespread "bank runs" that brought massive economic turbulence. Krugman believes that these digital tokens issued by private institutions and claiming to be pegged to fiat currency operate remarkably similarly to those private banknotes.
He goes further, viewing stablecoins as a new type of "shadow banking". Before the 2008 financial crisis, many non-bank financial institutions bypassed traditional bank prudential regulations, massively absorbing short-term funds and investing in longer-term or higher-risk assets, thus accumulating enormous maturity and liquidity mismatch risks. Once market confidence wavers, it can trigger large-scale redemptions or "bank runs". Due to the lack of central bank last-resort lending support and deposit insurance mechanisms, the collapse of these "shadow banks" could rapidly transmit through the entire financial system, causing a chain reaction.
Krugman's concerns focus on several core points:
- Regulatory Vacuum or Lag: Stablecoin issuers have long operated outside traditional banking's strict regulations, without needing to meet capital adequacy, liquidity coverage, and reserve requirements. This regulatory arbitrage makes risk accumulation easier.
- "Deposit" Nature and Redemption Risks: Stablecoins claim 1:1 fiat conversion, making users view them as digital, instantly redeemable "deposits". However, to generate profits, issuers invest user funds in various assets. If these reserve assets face liquidity issues or value declines, issuers might fail to meet large-scale redemption requests, causing price de-pegging or systemic collapse. The recent USDC incident of temporarily de-pegging due to holding Silicon Valley Bank deposits exemplifies this risk.
- Lack of Last-Resort Lending Support: Unlike traditional banks, stablecoin issuers typically lack central bank support as a "lender of last resort" providing emergency liquidity. In massive redemption scenarios, issuers are likely to be left isolated, accelerating their collapse.
- Opaque Reserve Funds: Although many stablecoin issuers claim full reserves, the composition, quality, and independent, rigorous auditing of these reserve assets have long been questioned. This opacity can rapidly amplify panic during market turmoil, accelerating redemptions.
Krugman's underlying message is that while stablecoins offer convenience, they might also become a massive, opaque pool of financial risk without adequate regulation.
Voices of Billions: The Real Value and Application Scenarios of Stablecoins
However, Krugman's "uselessness" argument was quickly strongly refuted by practitioners. Nick Carter, co-founder of Coin Metrics, directly pointed out that the existence of over 100 million stablecoin users is the most powerful rebuttal to the "useless" claim. Why do these users choose stablecoins? Because they see efficiency and value that traditional financial systems cannot achieve.
One of the most notable applications of stablecoins is their transformative potential in cross-border payments and remittances. In many emerging economies, traditional banking services are expensive and inefficient, with people often facing high inflation and currency depreciation. Stablecoins, by pegging to strong fiat currencies like the US dollar, provide a relatively stable digital value storage medium, making cross-border fund transfers faster and cheaper. For hundreds of millions of "unbanked" or "underbanked" people globally, a smartphone and stablecoin wallet can connect them to the global financial network, achieving financial inclusion almost unimaginable in traditional financial systems.
Stablecoins are also the cornerstone of the decentralized finance (DeFi) ecosystem. In the highly volatile crypto market, stablecoins play the role of a "digital safe haven". Whether in decentralized lending, liquidity mining, or asset management, stablecoins provide a stable value measure and trading medium. They enable complex financial operations to be automatically executed through blockchain smart contracts, significantly enhancing transparency and efficiency, offering users investment and income channels beyond traditional finance.
Moreover, stablecoins show broad prospects in crypto asset trading, global salary disbursement, and even future digital goods and services payments. They bridge the gap between traditional fiat and emerging digital assets, providing a stable, efficient payment and settlement tool for the digital economy's prosperity.
Piercing the Mist: The "Stability" Path and Technical Underpinnings of Stablecoins
To understand the value and risks of stablecoins, one must delve into their internal mechanisms. Stablecoins achieve "stability" primarily through the following paths:
One is fiat-collateralized stablecoins (like USDT, USDC), which claim to be fully collateralized at a 1:1 ratio by fiat currency assets. Issuers place these reserve assets in banks or trust institutions and maintain stablecoin supply and anchoring through "minting" and "burning" mechanisms. The core of this model lies in the transparency, quality, and sufficiency of reserve assets; any negligence or opacity in reserve fund management can trigger a trust crisis.
Another is crypto-asset-collateralized stablecoins (like Dai), which maintain anchoring through over-collateralization of other volatile crypto assets. For instance, issuing 1 USD of Dai might require collateralizing 1.5 USD worth of Ethereum. This over-collateralization strategy aims to absorb underlying asset price fluctuations; if collateral value drops below a specific threshold, smart contracts will automatically liquidate to protect the stablecoin's anchoring. This model reduces reliance on centralized institutions to some extent but faces liquidation risks during extreme underlying asset volatility.
Another type is algorithmic stablecoin (such as the already collapsed TerraUSD). They do not rely on asset collateralization but instead use complex smart contract algorithms to dynamically adjust token supply to maintain price anchoring. When the price rises, the algorithm mints new coins to increase supply; when the price falls, tokens are destroyed to reduce supply. Such stablecoins require extremely high market confidence and perfect algorithmic design, and once confidence collapses, it may trigger a "death spiral", a risk lesson that still lingers in the market's memory.
From "Disorderly" to "Orderly": Global Stablecoin Regulatory Trends
Krugman's warning is not an isolated case. Global regulatory agencies have long been aware of the immense potential and potential risks of stablecoins and are accelerating the construction of corresponding regulatory frameworks aimed at guiding stablecoins from their early "disorderly" state to "orderly" development.
In the United States, legislative proposals on stablecoins, such as the GENIUS Act, are striving to establish a clear federal or state-level licensing framework for payment stablecoins. These proposals generally emphasize strict reserve requirements (limited to cash, short-term government bonds, and other highly liquid assets), mandatory audits and public disclosure of reserve composition, and compliance with anti-money laundering (AML) and sanctions regulations. Notably, the bill explicitly states that stablecoins cannot pay interest and are not covered by federal deposit insurance, which is precisely to distinguish and isolate risks from the traditional banking system.
The European Union is at the forefront globally, with its Crypto Assets Market Regulation Act (MiCA) imposing more stringent requirements on stablecoins (subdivided into "asset reference tokens" and "electronic money tokens"). MiCA requires issuers to maintain full reserves and undergo prudential supervision, while also emphasizing market integrity, consumer protection, and a strict licensing system. The implementation of MiCA means that within the EU, stablecoins will be subject to comprehensive and strict regulation, just like traditional financial products.
In Asia, Japan was the first to pass a stablecoin law in 2022. The bill defines stablecoins as "digital currencies", requiring them to be pegged to the yen and guarantee holders the right to redeem at face value. Most critically, Japan strictly limits stablecoin issuance rights to licensed banks, trust companies, and fund transfer institutions, reflecting its cautious attitude towards ensuring financial stability.
Warning and Opportunity: The Future Debate of Stablecoins
Krugman's remarks undoubtedly serve as an "emergency bell" for the stablecoin industry, reminding people not to forget the essence of financial risks while embracing innovation. The "shadow banking" landscape he depicts is precisely the nightmare regulators must strive to avoid.
However, the choices of billions of users and the positive evolution of global regulatory trends also indicate that stablecoins are not without merit. The blockchain technology advantages they carry, such as low cost, high efficiency, borderlessness, and programmability, bring unprecedented imaginative space to the digital economy.
The debate about the "usefulness" and "riskiness" of stablecoins will ultimately be answered by the market, technology, and increasingly sophisticated regulatory frameworks. Whether stablecoins can transform from a potential "financial fuse" to a "digital future" driving global financial change depends on whether they can establish sufficient transparency, a sound risk management system, and a compliant path that is compatible with the traditional financial system while maintaining technological advantages.
We are at a critical period of financial innovation. Krugman's warning and the practices of billions of users together paint a complex and potential-filled landscape of stablecoins. In the future, how will stablecoins, under regulatory protection, forge a path that both sparks innovation and ensures financial stability? This is undoubtedly a focus that deserves continued attention from everyone.
