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The Financial Stability Implications of Digital Assets

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Abstract

The value of assets in the digital ecosystem has grown rapidly, amid periods of high volatility. Does the digital financial system create new potential challenges to financial stability? This paper explores this question using the Federal Reserve’s framework for analyzing vulnerabilities in the traditional financial system. The digital asset ecosystem has recently proven itself highly fragile. However adverse digital asset markets shocks have had limited spillovers to the traditional financial system. Currently, the digital asset ecosystem does not provide significant financial services outside the ecosystem, and it exhibits limited interconnections with the traditional financial system. The paper describes emerging vulnerabilities that could present risks to financial stability in the future if the digital asset ecosystem becomes more systemic, including: run risks among large stablecoins, valuation pressures in crypto-assets, fragilities of DeFi platforms, growing interconnectedness, and a general lack of regulation.

Suggested Citation

  • Garth Baughman & Francesca Carapella & David E. Rappoport & Chiara Scotti & Nathan Swem & Alexandros Vardoulakis, 2022. "The Financial Stability Implications of Digital Assets," Finance and Economics Discussion Series 2022-058, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2022-58
    DOI: 10.17016/FEDS.2022.058
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    Cited by:

    1. Alistair Milne & Vivienne Lawack, 2024. "Digital assets in payments and transaction banking," Working Papers 11073, South African Reserve Bank.
    2. Nguyen, Minh Hong & Thanh, Binh Nguyen & Pham, Huy & Pham, Thi Thu Tra, 2025. "The determinants of funding liquidity risk in decentralized lending," Global Finance Journal, Elsevier, vol. 64(C).
    3. Foglia, Matteo & Maci, Giampiero & Pacelli, Vincenzo, 2024. "FinTech and fan tokens: Understanding the risks spillover of digital asset investment," Research in International Business and Finance, Elsevier, vol. 68(C).
    4. Marcin Pietrzak, 2023. "What can monetary policy tell us about Bitcoin?," Annals of Finance, Springer, vol. 19(4), pages 545-559, December.
    5. Hui, Cho-Hoi & Wong, Andrew & Lo, Chi-Fai, 2025. "Stablecoin price dynamics under a peg-stabilising mechanism," Journal of International Money and Finance, Elsevier, vol. 152(C).
    6. Kenechukwu E. Anadu & Pablo D. Azar & Catherine Huang & Marco Cipriani & Thomas M. Eisenbach & Gabriele La Spada & Mattia Landoni & Marco Macchiavelli & Antoine Malfroy-Camine & J. Christina Wang, 2023. "Runs and Flights to Safety: Are Stablecoins the New Money Market Funds?," Staff Reports 1073, Federal Reserve Bank of New York.
    7. Dominik Metelski & Janusz Sobieraj, 2022. "Decentralized Finance (DeFi) Projects: A Study of Key Performance Indicators in Terms of DeFi Protocols’ Valuations," IJFS, MDPI, vol. 10(4), pages 1-23, November.
    8. Ilyas Ahnach & Said Tounsi, 2025. "La Technologie Blockchain Et La Resilience Du Marche Financier : Etude D'Impact Et De Relation, Cas De La Bourse De Casablanca," Post-Print hal-05135043, HAL.

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    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G01 - Financial Economics - - General - - - Financial Crises

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