A new study by the National Bureau of Economic Research (NBER) has raised serious concerns about the widespread adoption of stablecoins, warning that the very design meant to ensure their stability could make them vulnerable to catastrophic “runs.”
The
research challenges the conventional wisdom that more competition among stablecoin providers leads to greater market stability. Instead, it reveals a fundamental tradeoff between maintaining a dollar peg on a daily basis and the ability to withstand a major crisis.
The paradox of the model
The study’s model puts concrete numbers on this hidden risk, estimating an annual run probability of 3.9% for Tether (USDT) and 3.3% for USDC. While these figures might seem small, the report stresses that they are alarmingly high when compared to the risk of a similar event for a Federal Deposit Insurance Corporation (FDIC) backed bank account, which is nearly 4,000 times lower.
The key finding is a paradox: stablecoins that employ a large number of centralized arbitrageurs—traders who buy and sell to maintain the peg—are more vulnerable. In a crisis, the presence of these traders can give investors a false sense of security, encouraging a “race to the exit” that can quickly deplete reserves and trigger a run.
In contrast, stablecoins with a more concentrated group of arbitrageurs may be better able to manage a crisis, as these large players are more incentivized to protect their position and prevent a collapse.
As Congress debates historic stablecoin legislation, this research provides a critical and timely warning. It suggests that without a robust regulatory framework that addresses these inherent design flaws, the foundation of the growing crypto ecosystem remains far more fragile than many realize.
Source: https://coinidol.com/significant-run-risk-stablecoin/
