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

Journal of Financial Market Infrastructures

Abstract: This paper investigates the volatility dynamics of US-dollar-backed stablecoins, challenging the assumption of inherent stability. Using a multilevel econometric framework, including generalized autoregressive conditional heteroscedasticity, structural vector autoregression and time-varying parameter vector autoregression models, we analyze how stablecoins respond to macrofinancial shocks such as monetary policy changes, market uncertainty and crypto volatility. The results show that USD Coin and TrueUSD are highly sensitive to external disturbances, while USD Tether and MakerDAO’s DAI remain relatively resilient. Stablecoins primarily absorb volatility but become more connected to systemic risk during crises. Frequency-domain analysis reveals that 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.

References: Add references at CitEc
Citations:

Downloads: (external link)
https://www.risk.net/node/7963365 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:rsk:journ7:7963365

Access Statistics for this article

More articles in Journal of Financial Market Infrastructures from Journal of Financial Market Infrastructures
Bibliographic data for series maintained by Thomas Paine ().