Working Paper

Flight to Safety: Evaluating Stablecoin’s Role as a Safe-Haven Asset in DeFi Markets

Abstract: This study examines the impact of the stablecoin Tether (USDT) on systemic liquidity across the Ethereum and Bitcoin markets, utilizing an event study approach that integrates on-chain wallet data, pricing, and financial metrics. By analyzing cryptocurrency market responses to key protocol and market-moving events, augmented by nonlinear volatility models, we identify distinct, chain-specific flight-to-safety behaviors. Our results show that USDT acts as a primary liquidity lifeline for Ethereum holders during stress, particularly among retail investors, whereas its role for Bitcoin holders is more muted and stabilizing. Notably, we find stronger flight-to-safety evidence in Wrapped Bitcoin (Ethereum-based) than in native Bitcoin, highlighting that USDT’s function is network dependent. These findings imply that effective regulatory frameworks must be differentiated, accounting for chain-specific liquidity, investor composition, and risk dynamics, as a uniform approach would likely be systematically miscalibrated.

JEL Classification: G14; G23; G28; G41;

https://doi.org/10.21799/frbp.wp.2026.24

Bibliographic Information

Provider: Federal Reserve Bank of Philadelphia

Part of Series: Working Papers

Publication Date: 2026-05-07

Number: 26-24