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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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    Cited by:

    1. Castrén, Olli & Russo, Riccardo, 2026. "Runs, transparency and regulation: On the optimal design of stablecoin frameworks," Economics Letters, Elsevier, vol. 258(C).
    2. Xuesong Huang & Todd Keister, 2026. "Stablecoins vs. Tokenized Deposits: The Narrow Banking Debate Revisited," Staff Reports 1179, Federal Reserve Bank of New York.
    3. Daniel Aronoff & F. Christopher Calabia & Anders Brownworth & Ashwanth Samuel & Neha Narula, 2026. "The Hidden Plumbing of Stablecoins: Financial and Technological Risks in the GENIUS Act Era," Papers 2604.17167, arXiv.org.
    4. Elizabeth C. Klee & Arazi Lubis & Chase Ross & Sharon Y. Ross & Alexandros Vardoulakis, 2026. "The Fragility of Perfectly Safe Digital Money," Finance and Economics Discussion Series 2026-037, Board of Governors of the Federal Reserve System (U.S.).
    5. Tirupam Goel & Ulf Lewrick & Isha Agarwal, 2026. "Making stablecoins stabler(r): can regulation help?," BIS Working Papers 1355, Bank for International Settlements.
    6. Vanhoudt Patrick, 2026. "Anchoring Europe’s Monetary Future: Why a Wholesale Digital Euro Is the Immediate Priority," Intereconomics: Review of European Economic Policy, Sciendo, vol. 61(2), pages 73-80.
    7. Barrios, John & Bertsch, Christoph & Schilling, Linda, 2026. "One Asset, Two Financial Systems: Stablecoins and the Transmission of Runs between Decentralized and Traditional Finance," MPRA Paper 129798, University Library of Munich, Germany.
    8. Pietro Saggese & Michael Sigmund & Burkhard Raunig & Esther Segalla & Bernhard Haslhofer & Christos Makridis, 2026. "Stablecoins under Stress in a National Economy: Transaction-Level Evidence from Austrian Crypto-Asset Service Providers," Papers 2607.08524, arXiv.org.

    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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