Connections Between Wholesale Funding Markets and Stablecoin Utilization: Implications for Cross-Border Payments and Systemic Financial Risks
Open Access
Author:
Donnelley, Seth
Area of Honors:
Finance
Degree:
Bachelor of Science
Document Type:
Thesis
Thesis Supervisors:
Peter C Mhando, Thesis Supervisor Brian Spangler Davis, Thesis Honors Advisor
Keywords:
stablecoin cryptocurrency eurodollar Treasury bill commercial paper reverse repo cross-border payment systemic risk
Abstract:
This paper examines the relationship between the major stablecoins Tether and USD Coin and the prevailing yields in Treasury bill and commercial paper markets, as well as the utilization of the overnight reverse repurchase facility offered by the Federal Reserve. While previous research identified significant impacts on these assets from digital asset issuance, a 15 basis point shift in Treasury yield and 6 basis points in commercial paper yield was not supported by a two-stage least-squares model instrumented against the minimally reserved Dai stablecoin. However, a meaningful impact from Tether issuance on Treasury bill and commercial paper yield was demonstrated across all instrument tenors when controlling for autocorrelation, and the yield of 6-month and 1-year Treasury bills also demonstrated a causal relationship with respect to the issuance of Tether when controlling for mean reversion. The implications of these results are considered in relation to increasing concern over systemic risks in the macroeconomic environment, and the impact that movements in wholesale funding markets could have on retail-level users of digital assets in jurisdictions with less well-developed financial regulatory regimes.
