Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?

Abstract

Similar to the more traditional money market funds (MMFs), stablecoins aim to provide investors with safe, money-like assets. We investigate similarities and differences between these two investment products. Like MMFs, stablecoins suffer from ``flight-to-safetyʹʹ dynamics. We document net flows from riskier to safer stablecoins on days of crypto-market stress and estimate a discrete ``break-the-buckʹʹ threshold of $1, below which stablecoin redemptions accelerate. We then focus on two specific stablecoin runs, in 2022 and 2023, showing that the same flight-tosafety dynamics also characterized these episodes. Finally, as flight-to-safety flows occur within MMF families, stablecoin flows tend to occur within blockchains.