Stablecoins and Credit Risk

The study discusses the significance of stablecoins in the decentralized finance, highlighting their role in providing stability to the cryptocurrency market while enabling faster transactions without intermediaries. This is the first study that focuses exclusively on the stablecoins` market within the cryptocurrency realm. Results reveal that many stablecoins faced abandonment, with only a fraction being successfully resurrected, aligning with existing research. The study confirms that the time between structural break in price and stablecoins` collapse or a price stabilization ranges from a couple of days till two weeks. By employing a multidimensional approach, the study estimates probabilities of stablecoins` default and identifies factors contributing to higher default risks. It utilizes the Zero-price-probability method and Cox Proportional Hazards Model to assess stablecoins` default probabilities based on the market capitalization, demonstrating good predictive abilities by both models. The Cox Proportional Hazards Model also gives insights into the greater stability of Ethereum-based stablecoins and those issued before 2019. Overall, this study provides valuable perceptions into stablecoins` dynamics and their implications for cryptocurrency markets.