Stablecoin Depegging, Financial Intermediary Balance Sheet Constraints, and Liquidity in the U.S. Traditional Money Market (OpenAlex (recherche mondiale))

Summary

• By end-2025, the global stablecoin market grew from approximately $25 billion in 2020 to over $300 billion.p.2
• Tether (USDT) surpassed a market capitalization of $180 billion, commanding approximately 65% of total market share, while USD Coin (USDC) maintained around $75 billion.p.2
• Approximately 70% to 80% of reserves held by major stablecoins consist of U.S. Treasury securities and reverse repurchase agreements.p.3
• A 1% de-pegging shock causes the commercial paper spread to jump sharply by 38.35 basis points on the day of the de-pegging event (h = 0).p.17
• During the FTX collapse in November 2022, a peak de-pegging shock of 0.54% implied an immediate commercial paper spread increase of 20.71 bp.p.29

Key insights

1. Stablecoin depegging transmits liquidity stress to traditional money markets by tightening financial intermediaries' balance sheet constraints.p.2
2. Depegging shocks produce heterogeneous liquidity responses: Treasury bill liquidity improves initially before reversing, commercial paper liquidity deteriorates immediately, and repo market liquidity worsens with a delayed peak.p.2
3. Risk transmission operates mainly through a higher marginal cost of expanding balance sheet capacity rather than a large capital stock drawdown.p.2
4. When financial intermediary capital is under stress, liquidity deterioration from stablecoin depegging is significantly amplified across all three money markets.p.2
5. Stablecoin issuers exhibit the functional characteristics of shadow banks, creating deep risk coupling between digital asset markets and short-term dollar funding markets.p.3
6. The shadow price of intermediary balance sheet capacity rises immediately on the day of a depegging shock and peaks at horizon h = 5.p.24
7. A Federal Reserve monetary policy tightening cycle serves as an important background condition that amplifies liquidity deterioration following depegging shocks.p.29