On Stablecoin Price Processes and Arbitrage

Financial Cryptography 2021: Decentralized Finance Workshop Proceedings

16 Pages Posted: 26 Feb 2021

Date Written: February 23, 2021

Abstract

This study applies the Caginalp & Balenovic (1999) model for asset flow dynamics to fully collateralized stablecoins. The analysis provides novel insights on how trend-reversion and reactions to peg deviations work together to keep stablecoin prices close to the price they are targeting. A fixed-effects panel regression indicates that the model's abstraction of trading motivations indeed fits stablecoin price processes well. This study applies the Caginalp & Balenovic (1999) model for asset flow dynamics to fully collateralized stablecoins. The analysis provides novel insights on how trend-reversion and reactions to peg deviations work together to keep stablecoin prices close to the price they are targeting. A fixed-effects panel regression indicates that the model's abstraction of trading motivations indeed fits stablecoin price processes well.

Keywords: stablecoins, arbitrage, price formation

Suggested Citation

Pernice, Ingolf Gunnar Anton, On Stablecoin Price Processes and Arbitrage (February 23, 2021). Financial Cryptography 2021: Decentralized Finance Workshop Proceedings , Available at SSRN: https://ssrn.com/abstract=3793114

Ingolf Gunnar Anton Pernice (Contact Author)

Weizenbaum Institute for the Networked Society ( email )

Berlin
Germany

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