What Keeps Stable Coins Stable?

Cryptocurrencies and Stablecoins: a high frequency analysis

“…Our analysis allows us to investigate the role of stablecoins, and in particular of Tether, in cryptoasset markets going beyond the investigation of manipulation of the Bitcoin market as discussed in Griffin and Shams (2020); Lyons and Viswanath-Natraj (2020). In nutshell, we show that Bitcoin, Ether and Tether constitute a domain which is separated from the markets where these cryptoassets are traded against the US dollar.…”

“…shows that Tether grants are timed to follow Bitcoin downturns and are followed by subsequent high Bitcoin/ Tether trading volume, however the impact of Tether grants on Bitcoin subsequent returns is not statistically significant. No manipulation effect of Tether grants has been detected in Lyons and Viswanath-Natraj (2020); Kristoufek (2020).…”

“…However, we can not recover the complete information on the deals from the blockchain, e.g., the BTC-USD exchange rate associated with the transaction. For this reason we opted to deal with information (trades and order books) gathered directly from exchanges using market rather than blockchain data as in Brandvold et al (2015); Lyons and Viswanath-Natraj (2020); ; . The advantage is particularly significant in case of an intraday analysis for which synchronicity of price and trading volume is crucial.…”

“…An hypothesis partially confirmed by Baur and Hoang (2021) considering the reaction of stablecoin returns to extreme negative return of Bitcoin: they show that Tether is really a safe haven with a negative coefficient associated with extreme negative return of Bitcoin. Lyons and Viswanath-Natraj (2020) shows that Tether and other stablecoins exhibit safe haven properties. Their interpretation is that, during risky periods, stablecoins play the role of store of value incurring minimal intermediation costs.…”

“…Differently from many papers that concentrate on markets where cryptoassets/ currencies are traded against the US dollar, see (Ante et al, 2020;Aste, 2019;Baumohl & Vyrost, 2020;Baur et al, 2018;Bistarelli et al, 2019;Griffin & Shams, 2020;Grobys, 2021;Härdle et al, 2020;Paul & Agnes, 2017;Lyons & Viswanath-Natraj, 2020;Makarov & Schoar, 2020;Silantyev, 2019;Wang et al, 2020) or other currencies, see Pagnottoni & Dimp (2019), we also deal with markets where cryptoassets are traded between them. To limit the scope of our analysis, we deal with the two most important cryptocurrencies (Bitcoin and Ether) and the stablecoin Tether.…”