Paul Krugman Sparks Debate on Stablecoins’ Systemic Risks as Crypto Experts Defend Their Utility

Paul Krugman, Nobel Prize-winning economist, has reiterated strong criticism of stablecoins, labeling them as shadow banks and warning they pose major systemic risks to the financial system. Krugman argues that stablecoins lack meaningful utility compared to traditional payment systems, primarily facilitate illicit activities, and could threaten economic stability if a large-scale run forced issuers to liquidate US Treasuries—a move he warns might cause interest rates to surge and destabilize government debt markets. He also questioned the rationale behind US lawmakers advancing stablecoin regulation. In response, key crypto industry figures, including Coin Metrics co-founder Nic Carter and Bitwise’s Paul Fusaro, disputed Krugman’s claims, highlighting the global adoption of stablecoins like USDT and USDC by more than 100 million users for cross-border payments and market liquidity. These rebuttals emphasize the vital role stablecoins play in crypto trading and international transfers, underscoring the sharp divide between traditional economists and crypto advocates regarding stablecoin risks and value. As regulatory discussions accelerate, the challenge of balancing innovation with systemic risk remains central to the evolution of stablecoins and market stability.