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What keeps stablecoins stable?
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Lyons, Richard K. and Viswanath-Natraj, Ganesh (2023) What keeps stablecoins stable? Journal of International Money and Finance, 131 . 102777. doi:10.1016/j.jimonfin.2022.102777 ISSN 0261-5606.
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Official URL: http://doi.org/10.1016/j.jimonfin.2022.102777
Abstract
Using trades between the stablecoin treasury and private investors, we quantify how improved arbitrage design stabilizes the price of the dominant stablecoin, Tether. We identify two 2019 design reforms: migration of Tether from the Omni to the Ethereum blockchain and decentralization of issuance. These reforms increased investor access to arbitrage trading with the treasury, reducing the absolute size of peg deviations by half. Further evidence for the importance of arbitrage design is present in the stability mechanism of the stablecoin DAI and in the creation of authorized merchants for the pegged coin WBTC.
Item Type: | Journal Article | ||||||||
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Subjects: | H Social Sciences > HG Finance | ||||||||
Divisions: | Faculty of Social Sciences > Warwick Business School | ||||||||
Library of Congress Subject Headings (LCSH): | Cryptocurrencies , Arbitrage , Foreign exchange rates | ||||||||
Journal or Publication Title: | Journal of International Money and Finance | ||||||||
Publisher: | Elsevier BV | ||||||||
ISSN: | 0261-5606 | ||||||||
Official Date: | March 2023 | ||||||||
Dates: |
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Volume: | 131 | ||||||||
Article Number: | 102777 | ||||||||
DOI: | 10.1016/j.jimonfin.2022.102777 | ||||||||
Status: | Peer Reviewed | ||||||||
Publication Status: | Published | ||||||||
Access rights to Published version: | Open Access (Creative Commons) | ||||||||
Date of first compliant deposit: | 1 February 2023 | ||||||||
Date of first compliant Open Access: | 1 February 2023 |
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