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An econometric investigation on the stability of stablecoins: Are these coins stable or is their stability just a flip of the coin?

Author

Listed:
  • Lala AlAsadi
  • Oluwasegun Bewaji
  • Aayush Gugnani
  • Tarush Gupta
  • Ronald Heijmans

Abstract

This paper investigates the volatility dynamics of USD-backed stablecoins, challenging the assumption of inherent stability. Using a multi-level econometric framework, including GARCH, SVAR, and TVP-VAR models, we analyze how stablecoins respond to macro-financial shocks such as monetary policy changes, market uncertainty, and crypto volatility. Results show that USDC and TUSD are highly sensitive to external disturbances, while USDT and DAI remain relatively resilient. Stablecoins primarily absorb volatility but become more connected to systemic risk during crises. Frequency-domain analysis reveals short-term spillovers dominate during stress events, with long-term integration increasing post-2021. The findings highlight the heterogeneous nature of stablecoins and their growing ties to traditional finance, underscoring the need for tailored regulation and ongoing monitoring to mitigate systemic vulnerabilities.

Suggested Citation

  • Lala AlAsadi & Oluwasegun Bewaji & Aayush Gugnani & Tarush Gupta & Ronald Heijmans, 2025. "An econometric investigation on the stability of stablecoins: Are these coins stable or is their stability just a flip of the coin?," Working Papers 846, DNB.
    • Handle: RePEc:dnb:dnbwpp:846
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    References listed on IDEAS

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    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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