This paper analyzes the stability of stablecoins and proposes a framework to test for their stability. It finds strong evidence of excess price variations and suggests that stablecoins play a key role in cryptocurrency markets.
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| Research question | How stable are stablecoins? |
| Methodology | Framework to test stability based on high-frequency data. |
This paper analyzes the stability of stablecoins and proposes a framework to test for absolute and relative stability of stablecoins. Based on high-frequency data, we find strong evidence of excess price variations. While Bitcoin is a likely source of this excess volatility because stablecoin returns, volatility and volumes are highly correlated with corresponding Bitcoin time-series, we also demonstrate through a quasi-natural experiment that stablecoins increase the trading volume of Bitcoin. The findings suggest stablecoins play a key role in cryptocurrency markets.
Lai T. Hoang, Dirk G. Baur (2021). How stable are stablecoins? European Journal of Finance.
@article{hoang2021howstablearestablecoins,
title = {How stable are stablecoins?},
author = {Lai T. Hoang and Dirk G. Baur},
year = {2021},
institution = {Taylor & Francis},
journal = {European Journal of Finance},
doi = {10.1080/1351847x.2021.1949369},
url = {https://doi.org/10.1080/1351847x.2021.1949369},
note = {Indexed by Stablecoin Beat},
}