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Peg Stability & Runs

Peg mechanisms, depegs, run risk, redemption and reserve design.

7 of 33 indexed papers · the whole library

Paper Venue Year
Stablecoins and Fragility in Fixed Exchange Rate Regimes Brandon Joel TanA global-games model of how dollar stablecoins affect parallel FX markets under fixed or managed exchange rates: stablecoins both widen access to foreign currency and create a common public price that can coordinate runs, so their welfare effect is state-dependent — beneficial when misalignment is low, destabilizing when it is high.
Key findings
  • Under rationed foreign currency, the true degree of exchange-rate misalignment is unobserved; traditional parallel markets reveal it only imperfectly because information is dispersed across private bilateral trades.
  • Stablecoins both widen access to dollar-like claims outside the official allocation system and create a visible, high-frequency common price that aggregates order flow in one venue.
  • In the model, stablecoin market depth determines the precision of a common public signal about misalignment — producing a state-dependent welfare effect.
  • When misalignment is low, access and allocation gains dominate and stablecoins raise welfare.
  • When misalignment is high, a more precise public price compresses belief dispersion and synchronizes exit, so a coordination externality can trigger runs and overturn the access benefit.
  • This supports a state-contingent policy: preserve low-cost access in normal states, but use temporary, targeted measures to manage large or run-like flows when misalignment is high.
 IMF Working Paper WP/26/144, Western Hemisphere Department 2026
What Keeps Stablecoins Stable? Richard K. Lyons, Ganesh Viswanath-NatrajEmpirical study of the arbitrage mechanism that holds fiat-backed stablecoins near their peg.
Key findings
  • Peg deviations are corrected mainly through the primary market (mint/redeem by authorized participants).
  • Access to primary-market arbitrage strengthened peg stability over time.
 Journal of International Money and Finance (NBER WP 27136) Top-tier journal 2023
A Luna-tic Stablecoin Crash Harald UhligPost-mortem of the May 2022 Terra/UST algorithmic-stablecoin collapse.
Key findings
  • Models the UST depeg as a run driven by loss of confidence rather than purely mechanical failure.
  • Highlights the fragility of algorithmic stablecoins lacking hard collateral.
 NBER Working Paper 30256 2022
Can Stablecoins Be Stable? Adrien d'Avernas, Vincent Maurin, Quentin VandeweyerTheoretical analysis of whether fiat-backed stablecoins can remain stable without deposit insurance or a lender of last resort.
Key findings
  • Stablecoins are exposed to runs absent a backstop; par stability is not guaranteed by full reserves alone.
  • Explores conditions (fees, redemption design) under which a peg can survive stress.
 Working paper (Becker Friedman Institute / SSRN) 2022
Leverage and Stablecoin Pegs Gary B. Gorton, Chase P. Ross, Sharon Y. RossAnalyses 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.
 NBER Working Paper 30796 2022
Stablecoins as a tool to mitigate the downside risk of cryptocurrency portfolios Antonio Díaz, Carlos Esparcia, Diego HuélamoThis 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.
 The North American Journal of Economics and Finance 2022
Is Bitcoin Really Untethered? John M. Griffin, Amin ShamsA high-profile empirical study associating Tether (USDT) issuance with support of Bitcoin prices during the 2017 run-up.
Key findings
  • Finds patterns consistent with Tether being issued and used to support Bitcoin prices during downturns in 2017.
  • Raises questions about whether issuance was fully backed by reserves.
  • Became foundational to concerns about stablecoin reserve transparency and market impact.
 The Journal of Finance, Vol. 75(4) Top-tier journal 2020
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