Runs on Stablecoins

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

Discussion Paper

Runs on Stablecoins

Abstract: Stablecoins are digital assets whose value is pegged to that of fiat currencies, usually the U.S. dollar, with a typical exchange rate of one dollar per unit. Their market capitalization has grown exponentially over the last couple of years, from $5 billion in 2019 to around $180 billion in 2022. Notwithstanding their name, however, stablecoins can be very unstable: between May 1 and May 16, 2022, there was a run on stablecoins, with their circulation decreasing by 15.58 billion and their market capitalization dropping by $25.63 billion (see charts below.) In this post, we describe the different types of stablecoins and how they keep their peg, compare them with money market funds—a similar but much older and more regulated financial product, and discuss the stablecoin run of May 2022.

Keywords: cryptocurrency; stablecoins; money market mutual funds (MMF); fire sale; currency;

JEL Classification: E42;