Stablecoin Devaluation Risk
SSRN Electronic Journal
2023
- 3Citations
- 1,760Usage
- 7Captures
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Example: if you select the 1-year option for an article published in 2019 and a metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019. If you select the 3-year option for the same article published in 2019 and the metric category shows 90%, that means that the article or review is performing better than 90% of the other articles/reviews published in that journal in 2019, 2018 and 2017.
Citation Benchmarking is provided by Scopus and SciVal and is different from the metrics context provided by PlumX Metrics.
Article Description
Stablecoins' reliance on centralized custodians introduces devaluation risk similar to that of traditional currencies under fixed exchange rate regimes. We construct market-based measures of stablecoin devaluation risk using spot and futures prices for Tether, estimating an average devaluation probability of 60 basis points annually and peaking at over 200 basis points during the 2022 Terra-Luna crash. Key risk factors include market volatility and transaction velocity, with elevated interest rates indicating devaluation risk. Deviations from covered interest rate parity point to segmentation between traditional and stablecoin markets, driven by leverage trading and arbitrage costs. Our findings suggest the need for increased transparency and regulatory oversight to mitigate stablecoin risk.
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