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Leverage and Stablecoin Pegs / Gary B. Gorton, Elizabeth C. Klee, Chase P. Ross, Sharon Y. Ross, Alexandros P. Vardoulakis.
- Format:
- Book
- Author/Creator:
- Gorton, Gary B.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w30796.
- NBER working paper series no. w30796
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2022.
- Summary:
- Money is debt that circulates with no questions asked. Stablecoins are a new form of private money that circulate with many questions asked. We show how stablecoins can maintain a constant price even though they face run risk and pay no interest. Stablecoin holders are indirectly compensated for stablecoin run risk because they can lend the coins to levered traders. Levered traders are willing to pay a premium to borrow stablecoins when speculative demand is strong. Therefore, the stablecoin can support a $1 peg even with higher levels of run risk.
- Notes:
- Print version record
- December 2022.
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