What keeps stablecoins stable?

Lyons, Richard K.; Viswanath-Natraj, Ganesh

doi:10.1016/j.jimonfin.2022.102777

Cited by 31 publications

(8 citation statements)

References 33 publications

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“…As we can see, the coins have episodes in which the prices deviate but tend to be mean-reverting to the parity (red line). This is consistent with the results ofLyons and Viswanath-Natraj (2023) that document that the liquidity and stability mechanisms of the currencies and the exchanges have eliminated or reduced the duration (half-life) considerably in recent years.…”

supporting

confidence: 91%

“…Subsequently, I focused on stablecoins pegged to the dollar, totaling 39 of them. An exception was made for Terra USD, included due to its significance in one of the major stablecoin crashes, as documented inBriola et al (2023) andLyons and Viswanath-Natraj (2023). Most of the stablecoins have either been issued recently or have failed and disappeared, then it makes sense to focus on the biggest and with higher liquidity.…”

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confidence: 99%

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Essays in International Finance

Fernandez Mejia

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Preceding the global financial crisis, the 1990s witnessed a series of currency crises alongside the formation of the European Union. These events fostered a trend towards market lib-eralization, facilitating the capital flows of different types of assets. many nations adopted floating exchange rates to grant increased autonomy to their Central Banks, consequently al-tering monetary policy regimes. This evolution in exchange rate mechanisms was intricately linked to the expanding global trade and financial markets. The returns and volatility of these markets became crucial tools for policymakers, not solely in managing international trade but also in forecasting capital flow behaviors within the countries. As a result, exchange rates began to influence not only trade dynamics but also the vulnerability of economies to external shocks from the global international financial markets. In this thesis, I present three chapters that explore the determinants, behaviors, and consequences of foreign exchange rate fluctuations on the economy. It focuses on interest rate parity deviations, extreme movements, and responses in capital flows. As part of the research, I investigate stablecoins, digital currencies designed to streamline transactions and overcome the volatility constraints of traditional exchange rates. These investigations align closely with the research agendas of International Finance and Financial Economics, offering valuable insights for academics, policymakers, and industry practitioners. The research employs modern econometric methods to analyze the fluctuations of both traditional and electronic currencies, revealing their sensitivity to external and internal factors. It also offers insights for establishing an efficient stabilization mechanism within the context of macroprudential policies.

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confidence: 91%

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confidence: 99%

Essays in International Finance

Fernandez Mejia

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“…As CBDCs have central bank backing, they are not subject to conflicts of interest around asset backing and stabilization mechanisms. Moreover, their value can be pegged to the reference currency, thus eliminating fluctuations in value (Mancini-Griffoli et al 2018;Arner et al 2020;Allen et al 2022;Gadzinski et al 2023;Lyons and Viswanath-Natraj 2023).…”

Section: Currenciesmentioning

confidence: 99%

A Review of Central Bank Digital Currency: Current Status and Changing Trends

Ceylan

2024

İzmir İktisat Dergisi

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Since the emergence of the Central Bank Digital Currency (CBDC), which digitally represents the legal currency of the country in which it is created, significant developments have been experienced in the global financial environment as a result of the changes brought about by the innovations. Although CBDCs offer various advantages, such as cost reduction, financial inclusion, and increasing the efficiency of payment systems, they may create some disadvantages, such as the risk of dysfunctionalization of the banking sector or decreasing the level of security. At this point, it is necessary to be aware of the possible risks it may create and to develop an optimum strategy in case such risks arise to establish a successful CBDC system and benefit from its advantages. In this context, the aim of this study is to analyze all aspects (emergence process, positive/negative sides, projects, use cases, and technical infrastructure to be used) of this digital currency and to make a comprehensive evaluation of CBDC applications around the world. The evaluations show that many countries are not indifferent to this new digital currency, which has a very high development potential, and continue their research intensively in order not to fall behind the steps taken in CBDC.

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“…Stablecoins, particularly Tether which is the third largest cryptocurrency by market value and by far the largest in terms of volume, 1 may be used as a safe haven for Bitcoin investors (Baur and Hoang 2021). However, stablecoins sometimes trade at a premium to the underlying asset they mimic because of the high fees to trade cryptocurrencies in US dollars, the difficulty of using US dollars on cryptocurrency exchanges, as well as the speed and ease of transferring stablecoins between exchanges (Lyons and Viswanath-Natraj 2020). 2 Different stablecoins attempt the same goal-maintaining a $1 peg-but with vastly different structural designs and transparency levels.…”

Section: Introductionmentioning

confidence: 99%