Stablecoin Devaluation Risk

63 Pages Posted: 31 May 2023

See all articles by Barry Eichengreen

Barry Eichengreen

University of California, Berkeley

My T. Nguyen

Washington University in St Louis, John M. Olin Business School

Ganesh Viswanath-Natraj

Warwick Business School

Date Written: May 26, 2023


We construct market-based measures of stablecoin devaluation risk using spot and futures prices for Tether. We estimate an average probability of devaluation over one year of 60 basis points, rising to 200 basis points during the March 2020 "Black Thursday" Crypto crash and the March 2022 Terra-Luna crash. One might expect devaluation probabilities to be connected to interest rates on stablecoins at DeFi lending protocols via covered interest parity; contrary to this expectation, we find that deviations from covered interest parity are pervasive. Nor do stablecoin interest rates respond to Federal Reserve policy announcements in the manner of conventional market interest rates. We suggest explanations for these disconnects, including market segmentation, lack of term structure in DeFi interest rates, lack of arbitrage capital in cryptocurrency markets, and transaction costs of arbitrage.

Keywords: Cryptocurrency, stablecoins, futures, bank runs, Tether, Bitcoin

JEL Classification: E5, F3, F4, G15, G18

Suggested Citation

Eichengreen, Barry and T. Nguyen, My and Viswanath-Natraj, Ganesh, Stablecoin Devaluation Risk (May 26, 2023). WBS Finance Group Research Paper , Available at SSRN: or

Barry Eichengreen

University of California, Berkeley ( email )

310 Barrows Hall
Berkeley, CA 94720
United States

My T. Nguyen

Washington University in St Louis, John M. Olin Business School ( email )

Room 274 Simon Hall
Washington University in St. Louis
St. Louis, MO 63130
United States
6188183228 (Phone)

Ganesh Viswanath-Natraj (Contact Author)

Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom
CV4 7AL (Fax)

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