How does the market regard stablecoins?

A new NBER working paper explores how investors view stablecoins within the crypto market. The researchers developed a model where a representative investor allocates liquidity between stablecoin deposits in lending pools and traditional safe assets like MMF shares. Three main predictions emerged from this framework:

First, the stablecoin deposit premium moves in sync with the Treasury premium when investors appreciate the safety and liquidity services offered by stablecoins. Second, an increase in Treasury supply causes the stablecoin deposit premium to decrease. Third, any drop in the perceived safety and liquidity of stablecoin deposits - due to events like de-pegging or hacking - leads to a reduction in their premium.

Using extensive data from hundreds of decentralized finance (DeFi) pools across various protocols, tokens, and blockchains, the researchers found evidence supporting these predictions. This suggests that investors treat stablecoin deposits as money-like instruments that are both borderless and permissionless, but also as fragile as other privately produced safe assets. The findings come from a new NBER working paper authored by Murillo Campello, Angela Gallo, Lira Mota, and Tammaro Terracciano.