The Financial Stability Implications of Digital Assets

Pablo Azar, Garth Baughman, Francesca Carapella, Jacob Gerszten, Arazi Lubis, Jp Perez-Sangimino, David E. Rappoport, Chiara Scotti, Nathan Swem, Alexandros Vardoulakis and Aurite Werman
Additional contact information
David E. Rappoport: https://www.federalreserve.gov/econres/david-e-rappoport.htm
Nathan Swem: https://www.federalreserve.gov/econres/nathan-swem.htm
Alexandros Vardoulakis: https://www.federalreserve.gov/econres/alexandros-vardoulakis.htm

Economic Policy Review, 2024, vol. 30, issue 2, 48 pages

Abstract: 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 have made a limited contribution to systemic risk given that the digital ecosystem is relatively small, is not a major provider of financial services, and exhibits limited interconnections with the traditional financial system.

Keywords: digital assets; stablecoins; DeFi; financial stability; financial vulnerabilities; systemic risk (search for similar items in EconPapers)
JEL-codes: E42 G01 G13 G20 G21 G28 (search for similar items in EconPapers)
Date: 2024
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Related works:
Working Paper: The Financial Stability Implications of Digital Assets (2022)
Working Paper: The Financial Stability Implications of Digital Assets (2022)
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DOI: 10.59576/epr.30.2.1-48

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