The Financial Stability Implications of Digital Assets

Garth Baughman, Francesca Carapella, David E. Rappoport, Chiara Scotti, Nathan Swem and Alexandros Vardoulakis
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

No 2022-058, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: The value of assets in the digital ecosystem has grown rapidly, amid periods of high volatility. Does the digital financial system create new potential challenges to financial stability? This paper explores this question using the Federal Reserve’s framework for analyzing vulnerabilities in the traditional financial system. The digital asset ecosystem has recently proven itself highly fragile. However adverse digital asset markets shocks have had limited spillovers to the traditional financial system. Currently, the digital asset ecosystem does not provide significant financial services outside the ecosystem, and it exhibits limited interconnections with the traditional financial system. The paper describes emerging vulnerabilities that could present risks to financial stability in the future if the digital asset ecosystem becomes more systemic, including: run risks among large stablecoins, valuation pressures in crypto-assets, fragilities of DeFi platforms, growing interconnectedness, and a general lack of regulation.

Keywords: digital assets; financial stability; financial vulnerabilities; stablecoins; systemic risk; defi (search for similar items in EconPapers)
JEL-codes: E42 G01 G13 (search for similar items in EconPapers)
Pages: 31 p.
Date: 2022-08
New Economics Papers: this item is included in nep-pay
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Citations: View citations in EconPapers (2)

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https://www.federalreserve.gov/econres/feds/files/2022058pap.pdf (application/pdf)

Related works:
Journal Article: The Financial Stability Implications of Digital Assets (2024)
Working Paper: The Financial Stability Implications of Digital Assets (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2022-58

DOI: 10.17016/FEDS.2022.058

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