An econometric investigation on the stability of stablecoins: Are these coins stable or is their stability just a flip of the coin?

Lala AlAsadi, Oluwasegun Bewaji, Aayush Gugnani, Tarush Gupta and Ronald Heijmans

Working Papers from DNB

Abstract: This paper investigates the volatility dynamics of USD-backed stablecoins, challenging the assumption of inherent stability. Using a multi-level econometric framework, including GARCH, SVAR, and TVP-VAR models, we analyze how stablecoins respond to macro-financial shocks such as monetary policy changes, market uncertainty, and crypto volatility. Results show that USDC and TUSD are highly sensitive to external disturbances, while USDT and DAI remain relatively resilient. Stablecoins primarily absorb volatility but become more connected to systemic risk during crises. Frequency-domain analysis reveals short-term spillovers dominate during stress events, with long-term integration increasing post-2021. The findings highlight the heterogeneous nature of stablecoins and their growing ties to traditional finance, underscoring the need for tailored regulation and ongoing monitoring to mitigate systemic vulnerabilities.

Keywords: stablecoins; volatility; financial markets; monetary policy (search for similar items in EconPapers)
JEL-codes: E42 E58 F31 G14 (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-cba, nep-fdg, nep-mon, nep-pay and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:dnb:dnbwpp:846

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