Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

RePEc Short ID: pla1101
ORCID iD: 0000-0001-5572-8259

Anadu, Kenechukwu E.; Azar, Pablo D.; Cipriani, Marco; Eisenbach, Thomas M.; Huang, Catherine; La Spada, Gabriele; Landoni, Mattia; Macchiavelli, Marco; Malfroy-Camine, Antoine; Wang, J. Christina

Working Paper

Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Abstract: Stablecoins and money market funds both seek to provide investors with safe, money-like assets but are vulnerable to runs in times of stress. In this paper, we investigate similarities and differences between the two, comparing investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the money market fund runs of 2008 and 2020. We document that, similar to money market fund investors, stablecoin investors engage in flight-to-safety, with net flows from riskier to safer stablecoins during run periods. However, whereas in money market funds run risk has historically materialized only in prime funds, in stablecoins, runs have occurred in different stablecoin types across the 2022 and 2023 runs. We also show that, similar to intrafamily flows in money market funds, stablecoin flows tend to be within blockchains. Finally, we estimate a discrete “break-the-buck” threshold of $0.99 for stablecoins, below which redemptions accelerate.

Keywords: stablecoins; money market mutual funds; financial stability; crypto assets; runs; liquidity transformation;

JEL Classification: G10; G20; G23;