What Drives Stablecoin Growth?

Abstract

This paper studies how stablecoin profitability, captured by their ability to invest their reserves in financial instruments, is the biggest driver of stablecoin growth. Tether (USDT) and other large stablecoin issuers capitalize on this capability, enhancing their market presence by adapting reserve management strategies to changing market conditions. Therefore our work expands the under- standing of stablecoin growth determinants by highlighting the importance of issuer profitability, suggesting indirect methods for issuers to foster stablecoin demand and holding. Our findings also provide critical insights for central bankers, regulators, policymakers, stablecoin providers, and other stakeholders considering the evolution of money, particularly in the wake of emerg- ing Central Bank Digital Currencies (CBDCs) in response to the growing size and importance of stablecoins.

Keywords: Stablecoin, Financial Markets, Safe Assets, Cryptocurrency, Blockchain