Igor Makarov, Antoinette Schoar · 2022 · Working paper · Brookings Papers on Economic Activity (NBER WP 30006)
Survey of crypto and DeFi market structure, including the central role of stablecoins as settlement assets.
Key findings
- Stablecoins are the primary settlement and collateral asset across crypto and DeFi.
- DeFi remains highly interconnected and reliant on a few large stablecoins.
Gary B. Gorton, Chase P. Ross, Sharon Y. Ross · 2022 · Working paper · NBER Working Paper 30796
Analyses how leverage and secondary-market liquidity determine whether a stablecoin holds its peg.
Key findings
- A stablecoin holds its peg when arbitrageurs can profitably trade it back to par; deep liquidity is key.
- Leverage built on stablecoins can amplify depeg dynamics.
Antonio Díaz, Carlos Esparcia, Diego Huélamo · 2022 · Journal article · The North American Journal of Economics and Finance
This paper empirically assessed the ability of three stablecoins to mitigate the downside risk of a traditional cryptocurrency portfolio. The findings indicated that dollar-backed stablecoins are particularly suitable as a hedge for crypto investors.
Key findings
- Dollar-backed stablecoins have low conditional correlations with cryptocurrency portfolios.
- All stablecoins considered have high diversification capacities by systematically reducing portfolio tail risk.
Sirio Aramonte, Wenqian Huang, Andreas Schrimpf · 2021 · Report · BIS Quarterly Review, December 2021
BIS analysis arguing DeFi retains points of centralisation and carries familiar financial risks.
Key findings
- DeFi exhibits a 'decentralisation illusion': governance and infrastructure remain concentrated.
- Stablecoins are a key channel linking DeFi to the traditional financial system.
Ariah Klages‐Mundt, Dominik Harz, Lewis Gudgeon, Junyou Liu, Andreea Minca · 2020 · Working paper
The work provides a foundational theory for stablecoins through a risk-based functional characterization of their economic structure. It matches economic models to custodial systems and characterizes risks in non-custodial stablecoins.
Key findings
- Stablecoins have varying risks according to their design.
- A model framework unifies existing models from economics and computer science.
- Unique risks in non-custodial stablecoins emerge.