Stablecoins and short-term funding markets

Abstract

Stablecoins - crypto-assets aiming at keeping a stable value - have grown rapidly since 2020. The largest stablecoin issuers hold short-term dollar-denominated assets to maintain a peg against the US dollar. This generated in just a couple of years a new source of demand for these assets. In this paper, we document the impact of stablecoin on commercial papers, which until recently represented a significant proportion of assets held by stablecoin issuers. We exploit two plausibly exogenous changes in reserve assets held by stablecoin issuers: changes in the demand for stablecoin and changes in reserve asset policy. We find that a positive demand shock emanating from stablecoin issuers increases CP issuance but has no material impact on CP rates, suggesting that CP issuers catered to the additional demand by issuing more. Our results highlight a new type of link between crypto-assets and conventional financial markets.

Keywords: Stablecoins; cryptocurrency; CBDC

JEL Classification: G14, G23, G29