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Stablecoin Runs and the Centralization of Arbitrage

Author

Listed:
  • Yiming Ma
  • Yao Zeng
  • Anthony Lee Zhang

Abstract

Stablecoins are cryptoassets which are designed to be pegged to the dollar, but are backed by imperfectly liquid USD assets. We show that stablecoins feature concentrated arbitrage: the largest issuer, Tether, only allows 6 agents in an average month to redeem stablecoins for cash. We argue that issuers' choice of arbitrage concentration reflects a tradeoff: efficient arbitrage improves stablecoin price stability in secondary markets, but amplifies run risks by reducing investors' price impact from selling stablecoins. Our findings imply that policies designed to improve stablecoin price stability may have the unintended consequence of increasing stablecoin run risks.

Suggested Citation

  • Yiming Ma & Yao Zeng & Anthony Lee Zhang, 2025. "Stablecoin Runs and the Centralization of Arbitrage," NBER Working Papers 33882, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:33882
    Note: AP CF ME
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    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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