Download This PaperLeverage and Stablecoin Pegs
77 Pages Posted: 28 Dec 2022 Last revised: 13 Jan 2025
There are 2 versions of this paper
Leverage and Stablecoin Pegs
Leverage and Stablecoin Pegs
Date Written: December 16, 2022
Abstract
Stablecoins are a new form of private money. They are fragile but largely trade at par. How? We present a model and empirical work to examine a novel source of demand for stablecoins. Stablecoin owners are indirectly compensated for run risk by lending their coins to crypto speculators. The stablecoin can then support its $1 peg, but this arrangement links crypto speculation to traditional financial markets where stablecoins invest their reserves.
Keywords: E40, E51, G12, N21 money, leverage, stablecoins, cryptocurrencies, global games, speculation
JEL Classification: G00, G10, G20, G23
Suggested Citation: Suggested Citation
Yale University - Yale Program on Financial Stability
165 Whitney Avenue
P.O. Box 208200
New Haven, CT 06520-8200
United States
Chase P. Ross
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
Sharon Ross
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States
HOME PAGE: http://sharonyross.com
Alexandros Vardoulakis
Board of Governors of the Federal Reserve System ( email )
20th Street and Constitution Avenue NW
Washington, DC 20551
United States