Stablecoin Runs and Disclosure Policy in the Presence of Large Sales

ArXiv ID: 2408.07227 “View on arXiv”

Authors: Unknown

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.

Keywords: Global games, Stablecoins, Depegging, Information asymmetry, Liquidity risk, Stablecoins

Complexity vs Empirical Score

  • Math Complexity: 7.5/10
  • Empirical Rigor: 2.0/10
  • Quadrant: Lab Rats
  • Why: The paper is built on a formal global game model with unique equilibrium analysis and comparative statics, indicating high mathematical density. It presents theoretical findings and testable implications but lacks any empirical data, backtests, or implementation details, focusing on conceptual analysis.
  flowchart TD
    A["Research Goal<br>Understanding stablecoin depegging<br>due to large sales & reserve quality"] --> B["Methodology<br>Global Game Model<br>incorporating information asymmetry"]
    B --> C["Key Inputs<br>1. Fundamentals (F)<br>2. Precision of private signals (θ)<br>3. Large Sale volume (S)"]
    C --> D["Computational Process<br>Solve for Equilibrium:<br>Derive run probability thresholds<br>Decompose total run risk<br>into Sale vs. Collateral components"]
    D --> E["Key Findings<br>1. Interaction Effect:<br>Precision impacts runs differently<br>based on fundamentals (strong/weak)<br>2. Risk Decomposition:<br>Regions of vulnerability to Sales<br>vs. Collateral risks identified"]