Stablecoins and Crypto Shocks

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

Discussion Paper

Stablecoins and Crypto Shocks

Abstract: In a previous post, we described the rapid growth of the stablecoin market over the past few years and then discussed the TerraUSD stablecoin run of May 2022. The TerraUSD run, however, is not the only episode of instability experienced by a stablecoin. Other noteworthy incidents include the June 2021 run on IRON and, more recently, the de-pegging of USD Coin’s secondary market price from $1.00 to $0.88 upon the failure of Silicon Valley Bank in March 2023. In this post, based on our recent staff report, we consider the following questions: Do stablecoin investors react to broad-based shocks in the crypto asset industry? Do the investors run from the entire stablecoin industry, or do they engage in a flight to safer stablecoins? We conclude with some high-level discussion points on potential regulations of stablecoins.

Keywords: stablecoins; runs; money market funds (MMFs); financial stability;

JEL Classification: G10; G20; G23;