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Stablecoin Runs and Disclosure Policy in the Presence of Large Sales

Author

Listed:
  • Brian Zhu
Abstract
Stablecoins have historically depegged due from par to large sales, possibly of speculative nature, or poor reserve asset quality. Using a global game which addresses both concerns, we show that the selling pressure on stablecoin holders increases in the presence of a large sale. While precise public knowledge reduces (increases) the probability of a run when fundamentals are strong (weak), interestingly, more precise private signals increase (reduce) the probability of a run when fundamentals are strong (weak), potentially explaining the stability of opaque stablecoins. The total run probability can be decomposed into components representing risks from large sales and poor collateral. By analyzing how these risk components vary with respect to information uncertainty and fundamentals, we can split the fundamental space into regions based on the type of risk a stablecoin issuer is more prone to. We suggest testable implications and connect our model's implications to real-world applications, including depegging events and the no-questions-asked property of money.

Suggested Citation

  • Brian Zhu, 2024. "Stablecoin Runs and Disclosure Policy in the Presence of Large Sales," Papers 2408.07227, arXiv.org.
    • Handle: RePEc:arx:papers:2408.07227
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    References listed on IDEAS

    as
    1. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September.
    2. Bertsch, Christoph, 2023. "Stablecoins: Adoption and Fragility," Working Paper Series 423, Sveriges Riksbank (Central Bank of Sweden).
    3. Lyons, Richard K. & Viswanath-Natraj, Ganesh, 2023. "What keeps stablecoins stable?," Journal of International Money and Finance, Elsevier, vol. 131(C).
    4. Rashad Ahmed & Iñaki Aldasoro & Chanelle Duley, 2024. "Public information and stablecoin runs," BIS Working Papers 1164, Bank for International Settlements.
    5. Gary B. Gorton & Elizabeth C. Klee & Chase P. Ross & Sharon Y. Ross & Alexandros P. Vardoulakis, 2022. "Leverage and Stablecoin Pegs," NBER Working Papers 30796, National Bureau of Economic Research, Inc.
    6. Jiageng Liu & Igor Makarov & Antoinette Schoar, 2023. "Anatomy of a Run: The Terra Luna Crash," NBER Working Papers 31160, National Bureau of Economic Research, Inc.
    Full references (including those not matched with items on IDEAS)

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