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Public information and stablecoin runs

Author

Listed:
  • Rashad Ahmed
  • Iñaki Aldasoro
  • Chanelle Duley

Abstract

We provide a global games framework to study how the promise of par convertibility by various types of stablecoins breaks down. Public information disclosure has an ambiguous effect on run risk: greater transparency can lead to increased (reduced) run risk for sufficiently low (high) stablecoin holders' priors about reserve quality or transaction costs of conversion to fiat. If the distribution of reserve assets is fat-tailed (i.e. reserves are volatile), par convertibility is resilient to small shocks but fails with large negative public shocks, even for high initial reserve values. We find empirical support for the testable implications of the model.

Suggested Citation

  • Rashad Ahmed & Iñaki Aldasoro & Chanelle Duley, 2024. "Public information and stablecoin runs," BIS Working Papers 1164, Bank for International Settlements.
    • Handle: RePEc:bis:biswps:1164
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    References listed on IDEAS

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    1. Alberto Abadie & Javier Gardeazabal, 2003. "The Economic Costs of Conflict: A Case Study of the Basque Country," American Economic Review, American Economic Association, vol. 93(1), pages 113-132, March.
    2. Toni Ahnert & Ali Kakhbod, 2017. "Information Choice and Amplification of Financial Crises," The Review of Financial Studies, Society for Financial Studies, vol. 30(6), pages 2130-2178.
    3. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2007. "Dynamic Global Games of Regime Change: Learning, Multiplicity, and the Timing of Attacks," Econometrica, Econometric Society, vol. 75(3), pages 711-756, May.
    4. George-Marios Angeletos & Christian Hellwig & Alessandro Pavan, 2006. "Signaling in a Global Game: Coordination and Policy Traps," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 452-484, June.
    5. Iñaki Aldasoro & Perry Mehrling & IDaniel H. Neilson, 2023. "On par: A Money View of stablecoins," BIS Working Papers 1146, Bank for International Settlements.
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    Cited by:

    1. John E. Marthinsen & Steven R. Gordon, 2024. "Synthetic Central Bank Digital Currencies and Systemic Liquidity Risks," IJFS, MDPI, vol. 12(1), pages 1-17, February.
    2. Brian Zhu, 2024. "Stablecoin Runs and Disclosure Policy in the Presence of Large Sales," Papers 2408.07227, arXiv.org.
    3. Walter Hernandez Cruz & Jiahua Xu & Paolo Tasca & Carlo Campajola, 2024. "No Questions Asked: Effects of Transparency on Stablecoin Liquidity During the Collapse of Silicon Valley Bank," Papers 2407.11716, arXiv.org.

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    More about this item

    Keywords

    stablecoins; crypto; global games; bank runs;
    All these keywords.

    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G01 - Financial Economics - - General - - - Financial Crises
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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