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The instability of stablecoins

Duan, K. and Urquhart, A. ORCID: (2023) The instability of stablecoins. Finance Research Letters, 52. 103573. ISSN 1544-6123

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This paper examines the stability of the five largest stablecoins in terms of market capitalization through a fractional time series analysis. By using hourly data of Tether, USDC, Binance USD, DAI and PAX Dollar, we find strong evidence of instability of stablecoins, although these deviations from the $1 mark are gradually corrected at different speeds for all stablecoins except for DAI. For the latter, the deviations do not converge even in the long-run due to non-stationarity of the differentiated series between its price and the $1 mark. BUSD is found as the most stable stablecoin with the fastest correction speed. Further rolling-window analysis shows that stability of different stablecoins exhibits strong co-movement and time-variation.

Item Type:Article
Divisions:Henley Business School > ICMA Centre
ID Code:109215


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