An econometric investigation on the stability of stablecoins: Are these coins stable or is their stability just a flip of the coin?

Working paper 846
Working Papers
Read aloud

Published: 04 November 2025

By: Lala AlAsadi Oluwasegun Bewaji Aayush Gugnani Tarush Gupta Ronald Heijmans

This paper investigates the volatility dynamics of USD-backed stablecoins, challenging the assumption of inherent stability. Using a multi-level econometric framework, including GARCH, SVAR, and TVP-VAR models, we analyze how stablecoins respond to macro-financial shocks such as monetary policy changes, market uncertainty, and crypto volatility. Results show that USDC and TUSD are highly sensitive to external disturbances, while USDT and DAI remain relatively resilient. Stablecoins primarily absorb volatility but become more connected to systemic risk during crises. Frequency-domain analysis reveals short-term spillovers dominate during stress events, with long-term integration increasing post-2021. The findings highlight the heterogeneous nature of stablecoins and their growing ties to traditional finance, underscoring the need for tailored regulation and ongoing monitoring to mitigate systemic vulnerabilities.

Keywords: stablecoins; volatility; financial markets; monetary policy
JEL codes F31; G14; E42; E58

Working paper no. 846

846 - An econometric investigation on the stability of stablecoins: Are these coins stable or is their stability just a flip of the coin?

4.2MB PDF
Download 846 - An econometric investigation on the stability of stablecoins: Are these coins stable or is their stability just a flip of the coin?

Research highlights: 

1.      The paper investigates the volatility and stability of major USD-backed stablecoins (USDT, USDC, DAI, TUSD) using advanced econometric models, challenging the assumption that these coins are inherently stable.

2.      USDC and TUSD are found to be highly sensitive to macro-financial shocks (like monetary policy changes and market volatility), while USDT and DAI are more resilient, showing less reaction to such disturbances.

3.      Stablecoins generally act as volatility absorbers in calm markets but become more connected to systemic financial risk during crises, especially since 2021, indicating growing integration with traditional finance.

4.      The findings highlight the need for differentiated regulation and ongoing monitoring of stablecoins, as their stability is heterogeneous and their ties to the traditional financial system are deepening.

Discover related articles