Leverage and Stablecoin Pegs
Gary B. Gorton, Elizabeth Klee, Chase P. Ross, Sharon Y. Ross, Alexandros Vardoulakis
Abstract
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.
Topics & Concepts
Leverage (statistics)BusinessChemistryEconomicsMonetary economicsFinancial systemComputer scienceMachine learningMechanics and Biomechanics StudiesCivil and Structural Engineering ResearchSoil Mechanics and Vehicle Dynamics