How stable are stablecoins?

Lai T. Hoang and Dirk G. Baur

The European Journal of Finance, 2024, vol. 30, issue 16, 1984-2000

Abstract: This paper analyzes the stability of stablecoins and proposes a framework to test for absolute and relative stability of stablecoins. Based on high-frequency data, we find strong evidence of excess price variations. While Bitcoin is a likely source of this excess volatility because stablecoin returns, volatility and volumes are highly correlated with corresponding Bitcoin time-series, we also demonstrate through a quasi-natural experiment that stablecoins increase the trading volume of Bitcoin. The findings suggest stablecoins play a key role in cryptocurrency markets.

Date: 2024
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DOI: 10.1080/1351847X.2021.1949369

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