Stablecoins: Survivorship, Transactions Costs and Exchange Microstructure

Abstract

This paper compares stablecoins to non-digital assets they could potentially displace. I find that the collateral structure of the leading stable coins resembles money market mutual funds, but they hold more cash than most government funds. Tokens with liquid collateral are more stable, yet the overall failure rate is similar to tokens that are not designed to be stable. Centralized and decentralized exchanges are the most active nodes and largest wallets on the blockchain. Four of the top ten tokens have more concentrated holdings than the U.S. banking system, even though decentralization has been one of the purported goals of digital assets. Turnover on centralized exchanges is significantly higher than popular technology stocks on the Nasdaq, and the share of high frequency trading is similar. Median transfer fees on-chain rose to over $40 in 2021, but have fallen back to single digits. Tether and USD Coin now have significantly lower interchange fees than Venmo. Transactions of under $50,000 can generally be done more cheaply off-chain.

Keywords: Stablecoins, transactions, fee, hazard function, market microstructure, cryptocurrency

JEL Classification: G23, G12