Synthetic Stablecoins and Financial Stability

Pablo Azar and Jeff Garofano

No 20260623, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: On October 10, 2025, the announcement of a potential additional 100 percent tariff on Chinese goods drove risk-off moves across equities, Treasuries, credit spreads, and digital assets. Digital asset prices fell sharply, trading volumes surged, and liquidity vanished from key exchanges. In this post, we show how the price shock in digital assets was transmitted and amplified through a class of instruments called synthetic stablecoins—crypto assets whose structural design turned an external shock into a self-reinforcing deleveraging spiral within the crypto ecosystem.

Keywords: stablecoins; cryptocurrency; cryptocurrency markets; financial stability; market liquidity; derivatives markets (search for similar items in EconPapers)
JEL-codes: G12 G18 (search for similar items in EconPapers)
Date: 2026-06-23
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DOI: 10.59576/lse.20260623

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