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Briefing
Central Bank Digital Currencies and Regulatory Alternatives: the Case for Stablecoins
Sultanum, Bruno (2022-07)
Central bank digital currencies (CBDCs) have been in the spotlight as the Federal Reserve and other central banks explore introducing them. At the same time, stablecoins are also growing in popularity, and many people including politicians and regulators have started discussing how to properly regulate their issuance and use. In this article, I discuss the question of whether a regulatory framework for stablecoins — where regulated banks can issue stablecoins backed 100 percent by deposits at the central bank — could serve as an alternative to issuing CBDCs.
Richmond Fed Economic Brief , Volume 22 , Issue 26

Working Paper
Interconnected DeFi: Ripple Effects from the Terra Collapse
Watsky, Cy; Badev, Anton (2023-06-29)
The emerging world of decentralized finance (DeFi), facilitated by smart contracts operating on blockchain networks, has been notable both for its rapid growth and the high-profile collapses of several of its largest participants. In this paper, we provide a technical account of the financial mechanisms which facilitated the growth and eventual collapse of the Terra Network. From this analysis, we outline a generalizable economic theory of blockchains which aims to differentiate the economics of blockchains as programmable environments from blockchains as accounting ledgers for crypto-assets. ...
Finance and Economics Discussion Series , Paper 2023-044

Working Paper
Global Stablecoins: Monetary Policy Implementation Considerations from the U.S. Perspective
Lowe, David; Malloy, Matthew (2021-03-22)
This note explores the potential effects of the widespread adoption of a global stablecoin (GSC) on key aggregate financial sector balance sheets in the United States. To do this, we map out cash flows of GSC transactions among financial sector entities using a stylized set of 't-accounts'. By analyzing these individual transactions, we infer aggregate and compositional effects on U.S. commercial banking sector and Federal Reserve balance sheets. Through this lens, we also consider how these balance sheet changes could affect monetary policy implementation, the demand for central bank ...
Finance and Economics Discussion Series , Paper 2021-020

Speech
The Song Remains the Same
Williams, John C. (2022-06-01)
Remarks at the New York Fed and Columbia SIPA Monetary Policy Implementation Workshop, New York City.
Speech

Discussion Paper
The Future of Payments Is Not Stablecoins
Garratt, Rod; Lee, Michael Junho; Martin, Antoine; Torregrossa, Joseph (2022-02-07)
Stablecoins, which we define as digital assets used as a medium of exchange that are purported to be backed by assets held specifically for that purpose, have grown considerably in the last two years. They rose from a market capitalization of $5.7 billion on December 1, 2019, to $155.6 billion on January 21, 2022. Moreover, a market that was once dominated by a single stablecoin—Tether (USDT)—now boasts five stablecoins with valuations over $1 billion (as of January 21, 2022; data about the supply of stablecoins can be found here). Analysts have started to pay increased attention to the ...
Liberty Street Economics , Paper 20220207

Journal Article
The Financial Stability Implications of Digital Assets
Azar, Pablo D.; Baughman, Garth; Carapella, Francesca; Gerszten, Jacob; Lubis, Arazi; Perez-Sangimino, JP; Rappoport, David E.; Scotti, Chiara; Swem, Nathan; Vardoulakis, Alexandros; Werman, Aurite (2024-11-01)
Financial activity associated with digital assets has grown rapidly, raising concerns about financial stability risks. This article presents an overview of these risks, adapting the Federal Reserve’s framework for monitoring financial stability in the traditional financial system. The overview reveals that the observed fragility of digital assets is associated with several financial vulnerabilities: valuation pressures of crypto assets, funding risk in most crypto sectors, the widespread use of leverage, and a highly interconnected crypto ecosystem. However, to date, these vulnerabilities ...
Economic Policy Review , Volume 30 , Issue 2 , Pages 1-48

Working Paper
Embedded Supervision: How to Build Regulation into Blockchain Finance
Auer, Raphael (2019-10-01)
The spread of distributed ledger technology (DLT) in finance could help to improve the efficiency and quality of supervision. This paper makes the case for embedded supervision, i.e., a regulatory framework that provides for compliance in tokenized markets to be automatically monitored by reading the market?s ledger, thus reducing the need for firms to actively collect, verify and deliver data. After sketching out a design for such schemes, the paper explores the conditions under which distributed ledger data might be used to monitor compliance. To this end, a decentralized market is modelled ...
Globalization Institute Working Papers , Paper 371

Working Paper
Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?
Macchiavelli, Marco; Eisenbach, Thomas M.; Anadu, Kenechukwu E.; Cipriani, Marco; La Spada, Gabriele; Wang, J. Christina; Huang, Catherine; Malfroy-Camine, Antoine; Azar, Pablo D.; Landoni, Mattia (2023-08-24)
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 ...
Supervisory Research and Analysis Working Papers , Paper SRA 23-02

Journal Article
Opinion: Digital Assets and Blockchain Through an Economics Lens
Kovner, Anna (2025-03-06)
It seems like everyone is talking about "crypto" these days. The word spans a diverse array of financial products and services, which collectively I'll refer to as "digital assets." Digital assets have developed into a complicated ecosystem, with a foundation in blockchain technology. Blockchain is a decentralized and distributed database, similar to a massive virtual ledger where each block is an entry. A blockchain can often be public and permanent, meaning no one owns it, everyone can see everyone's accounts, and transactions, which are updated in real time, cannot be reversed once they ...
Econ Focus , Volume 25 , Issue 1Q/2Q , Pages 32

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