Flight to Safety: Evaluating Stablecoin’s Role as a Safe-Haven Asset in DeFi Markets

Alan Chernoff (), Julapa Jagtiani and Nathaniel Yoshida

No 26-24, Working Papers from Federal Reserve Bank of Philadelphia

Abstract: This study examines the impact of the stablecoin Tether (USDT) on systemic liquidity across the Ethereum and Bitcoin markets, utilizing an event study approach that integrates on-chain wallet data, pricing, and financial metrics. By analyzing cryptocurrency market responses to key protocol and market-moving events, augmented by nonlinear volatility models, we identify distinct, chain-specific flight-to-safety behaviors. Our results show that USDT acts as a primary liquidity lifeline for Ethereum holders during stress, particularly among retail investors, whereas its role for Bitcoin holders is more muted and stabilizing. Notably, we find stronger flight-to-safety evidence in Wrapped Bitcoin (Ethereum-based) than in native Bitcoin, highlighting that USDT’s function is network dependent. These findings imply that effective regulatory frameworks must be differentiated, accounting for chain-specific liquidity, investor composition, and risk dynamics, as a uniform approach would likely be systematically miscalibrated.

Keywords: Cryptocurrency; Stablecoins; Bitcoin; Ethereum; Tether; Flight to safety; BTC; ETH; USDT (search for similar items in EconPapers)
JEL-codes: G14 G23 G28 G41 (search for similar items in EconPapers)
Pages: 37
Date: 2026-05-07
New Economics Papers: this item is included in nep-mon, nep-pay and nep-rmg
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedpwp:103156

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DOI: 10.21799/frbp.wp.2026.24

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