The instability of stablecoins

This paper examines the stability of the five largest stablecoins in terms of market capitalization through a fractional time series analysis. By using hourly data of Tether, USDC, Binance USD, DAI and PAX Dollar, we find strong evidence of instability of stablecoins, although these deviations from the $1 mark are gradually corrected at different speeds for all stablecoins except for DAI. For the latter, the deviations do not converge even in the long-run due to non-stationarity of the differentiated series between its price and the $1 mark. BUSD is found as the most stable stablecoin with the fastest correction speed. Further rolling-window analysis shows that stability of different stablecoins exhibits strong co-movement and time-variation.