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

RePEc Short ID: pla1101
ORCID iD: 0000-0001-5572-8259

Anadu, Kenechukwu E.; Azar, Pablo D.; Cipriani, Marco; Eisenbach, Thomas M.; Huang, Catherine; La Spada, Gabriele; Landoni, Mattia; Macchiavelli, Marco; Malfroy-Camine, Antoine; Wang, J. Christina

Working Paper Revision

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-safety” dynamics: we document net flows from riskier to safer stablecoins on days of crypto-market stress and estimate a discrete “break-the-buck” 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-to-safety dynamics also characterized these episodes. Finally, as flight-to-safety flows occur within MMF families, stablecoin flows tend to happen within blockchain.

Keywords: stablecoins; money market mutual funds; financial stability; crypto assets; runs; liquidity transformation;

JEL Classification: G10; G20; G23;