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Public information and stablecoin runs

Rashad Ahmed, Iñaki Aldasoro and Chanelle Duley

No 1164, BIS Working Papers from Bank for International Settlements

Abstract: We provide a global games framework to study how the promise of par convertibility by various types of stablecoins breaks down. Public information disclosure has an ambiguous effect on run risk: greater transparency can lead to increased (reduced) run risk for sufficiently low (high) stablecoin holders' priors about reserve quality or transaction costs of conversion to fiat. If the distribution of reserve assets is fat-tailed (i.e. reserves are volatile), par convertibility is resilient to small shocks but fails with large negative public shocks, even for high initial reserve values. We find empirical support for the testable implications of the model.

Keywords: stablecoins; crypto; global games; bank runs (search for similar items in EconPapers)
JEL-codes: C70 D83 D84 E42 G01 G20 (search for similar items in EconPapers)
Date: 2024-01
New Economics Papers: this item is included in nep-ban, nep-gth, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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