Balance sheet decomposition of crypto, stablecoin, central bank digital currency and tokenized assets

Wei Ye and Erick Rengifo

Journal of Financial Market Infrastructures

Abstract: Cryptocurrencies, stablecoins, central bank digital currencies and tokenized realworld assets are reshaping the balance sheets of central banks, commercial banks, nonbank financial intermediaries and households, yet the existing literature examines them in isolation. This paper constructs a unified, multi-entity balance sheet framework that incorporates all four asset classes via a six-stage stylized process and gives background showing the evolution of each stage. It makes a threefold contribution to the literature. First, we reveal cross-asset transmission channels, such as stablecoin runs propagating through money market funds into sovereign debt markets, that are invisible in single-asset studies. Second, we show that permissioned and permissionless blockchain issuances produce fundamentally different balance sheet dynamics: neutral liability substitution in the former versus unbounded offbalance- sheet leverage, analogous to pre-2008 shadow banking vehicles, in the latter. Third, we document a decentralized finance credit multiplier through which bank deposits, once tokenized and reused on-chain, generate multiple layers of credit beyond prudential regulation.

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