Stablecoin Supply, Liquidity, and Safe-Haven Role

Level: MA
Responsible person: Tao Yan
Keywords:  Blockchain, stablecoin, liquidity 

Stablecoins have become a core infrastructure in decentralized finance, enabling value transfer, trading, and collateralization across blockchain ecosystems. As their circulation expands across multiple chains, understanding how issuance and redemption policies affect liquidity and stability becomes important. This research investigates how stablecoin supply and redemption influence two kinds of liquidity: (1) the monetary liquidity of stablecoins themselves, measured by their velocity and circulation efficiency; and (2) the platform-level liquidity, reflected in total value locked (TVL) across DeFi protocols. The study will further explore how cross-chain issuance and supply allocation can be determined and optimized to maintain equilibrium across blockchains. Finally, this study will examine whether the stablecoin can act as a safe-haven asset during periods of market stress. 

References: 

[1] Adrian, T., & Shin, H. S. (2009). Money, liquidity, and monetary policy. American Economic Review, 99(2), 600-605. 

[2] Kołodziejczyk, H. (2023). Stablecoins as diversifiers, hedges and safe havens: A quantile coherency approach. The North American Journal of Economics and Finance, 66, 101912.