No Questions Asked: Effects of Transparency on Stablecoin Liquidity During the Collapse of Silicon Valley Bank

ArXiv ID: 2407.11716 “View on arXiv”

Authors: Unknown

Abstract

Fiat-pegged stablecoins are by nature exposed to spillover effects during market turmoil in Traditional Finance (TradFi). We observe a difference in TradFi market shocks impact between various stablecoins, in particular, USD Coin (USDC) and Tether USDT (USDT), the former with a higher reporting frequency and transparency than the latter. We investigate this, using top USDC and USDT liquidity pools in Uniswap, by adapting the Marginal Cost of Immediacy (MCI) measure to Uniswap’s Automated Market Maker, and then conducting Difference-in-Differences analysis on MCI and Total Value Locked (TVL) in USD, as well as measuring liquidity concentration across different providers. Results show that the Silicon Valley Bank (SVB) event reduced USDC’s TVL dominance over USDT, increased USDT’s liquidity cost relative to USDC, and liquidity provision remained concentrated with pool-specific trends. These findings reveal a flight-to-safety behavior and counterintuitive effects of stablecoin transparency: USDC’s frequent and detailed disclosures led to swift market reactions, while USDT’s opacity and less frequent reporting provided a safety net against immediate impacts.

Keywords: Stablecoins, Automated Market Maker, Marginal Cost of Immediacy, Liquidity Analysis, Difference-in-Differences, Cryptocurrencies

Complexity vs Empirical Score

  • Math Complexity: 6.5/10
  • Empirical Rigor: 7.0/10
  • Quadrant: Holy Grail
  • Why: The paper employs advanced mathematical measures (Marginal Cost of Immediacy adapted to AMMs) and econometric analysis (Difference-in-Differences) to investigate liquidity dynamics. It is data-heavy, utilizing real-world on-chain data from Uniswap pools around a specific historical event (SVB collapse) to test its hypotheses empirically.
  flowchart TD
    A["Research Goal:<br>Effect of TradFi Shocks<br>on Stablecoin Liquidity"] --> B["Methodology<br>Marginal Cost of Immediacy MCI<br>on Uniswap AMM"]
    B --> C["Data Inputs:<br>USDC/USDT Pools<br>SVB Collapse Period"]
    C --> D["Computational Processes:<br>Difference-in-Differences Analysis<br>on MCI & TVL"]
    D --> E["Key Findings:<br>Flight-to-Safety Behavior"]
    D --> F["Key Findings:<br>Transparency Paradox:<br>Higher Transparency =<br>Swift Market Reaction"]