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A stablecoin that’s actually stable: A portfolio optimization approach

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  • Grobys, Klaus
  • Junttila, Juha-Pekka
  • Kolari, James W.

Abstract

Stablecoins seek to address the high price fluctuations of unbacked cryptocurrencies, such as Bitcoin and Ether. However, recent studies as well as the collapse of stablecoin USTC (Terra) cast doubt on the stability of stablecoins. Using well-known Markowitz portfolio optimization methods, we combine five leading stablecoins into a global minimum variance portfolio that represents a stable aggregate stablecoin (SAS). We find that SAS is much more stable than its constituent stablecoins. Also, in a stress test adding USTC to the portfolio, SAS remains stable with a narrow price range over time. Importantly, the construction of SAS using modern diversification methods has practical implications for the ongoing development of central bank digital currencies (CBDCs).

Suggested Citation

  • Grobys, Klaus & Junttila, Juha-Pekka & Kolari, James W., 2025. "A stablecoin that’s actually stable: A portfolio optimization approach," Journal of Financial Stability, Elsevier, vol. 81(C).
    • Handle: RePEc:eee:finsta:v:81:y:2025:i:c:s1572308925000877
    DOI: 10.1016/j.jfs.2025.101458
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    References listed on IDEAS

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    1. Shengwei You & Aditya Joshi & Andrey Kuehlkamp & Jarek Nabrzyski, 2026. "Stablecoin Design with Adversarial-Robust Multi-Agent Systems via Trust-Weighted Signal Aggregation," Papers 2601.22168, arXiv.org.

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    JEL classification:

    • C19 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Other
    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • C59 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Other
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G19 - Financial Economics - - General Financial Markets - - - Other

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