Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Kenechukwu Anadu (), Pablo D. Azar, Catherine Huang, Marco Cipriani, Thomas Eisenbach, Gabriele La Spada, Mattia Landoni, Marco Macchiavelli, Antoine Malfroy-Camine and J. Christina Wang
Additional contact information
Pablo D. Azar: https://www.newyorkfed.org/research/economists/azar
Marco Cipriani: https://www.newyorkfed.org/research/economists/cipriani
Gabriele La Spada: https://www.newyorkfed.org/research/economists/laspada

No 23-11, Working Papers from Federal Reserve Bank of Boston

Abstract: Stablecoins and money market funds both seek to provide investors with safe, money-like assets but are vulnerable to runs in times of stress. In this paper, we investigate similarities and differences between the two, comparing investor behavior during the stablecoin runs of 2022 and 2023 to investor behavior during the money market fund runs of 2008 and 2020. We document that, similarly to money market fund investors, stablecoin investors engage in flight to safety, with net flows from riskier to safer stablecoins during run periods. However, whereas in money market funds, run risk has historically materialized only in prime funds, with stablecoins, runs occurred in different stablecoin types across the 2022 and 2023 episodes. We also show that, similar to intrafamily flows in money market funds, stablecoin flows tend to be within blockchains. Finally, for stablecoins, we estimate a discrete “break-the-buck” threshold of $0.99, below which redemptions accelerate.

Keywords: stablecoins; money market mutual funds; financial stability; crypto assets; runs; liquidity transformation (search for similar items in EconPapers)
JEL-codes: G10 G20 G23 (search for similar items in EconPapers)
Pages: 48
Date: 2023-09-01
New Economics Papers: this item is included in nep-ban, nep-ifn, 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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Related works:
Working Paper: Runs and Flights to Safety: Are Stablecoins the New Money Market Funds? (2024)
Working Paper: Runs and Flights to Safety: Are Stablecoins the New Money Market Funds? (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedbwp:97050

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DOI: 10.29412/res.wp.2023.11

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