Toward greater stability in stablecoins: Empirical evidence from an analysis of precious metals

Cryptocurrencies surged in popularity as an alternative medium of payment and security among both users and investors. However, the recent collapse of Bitcoin, Ether, and other traditional cryptocurrencies has raised concern about their capacity to function as a good store of value, investment, or h...

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Bibliographic Details
Published inBorsa Istanbul Review Vol. 23; no. 5; pp. 1152 - 1172
Main Authors Asadov, Alam, Yildirim, Ramazan, Masih, Mansur
Format Journal Article
LanguageEnglish
Published Elsevier B.V 01.09.2023
Elsevier
Subjects
C22
C54
Crypto-assets
E42
G15
O33
Precious metals
Stablecoins
Precious metals
Crypto-assets
C22
E42
C54
Stablecoins
G15
O33
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Summary:Cryptocurrencies surged in popularity as an alternative medium of payment and security among both users and investors. However, the recent collapse of Bitcoin, Ether, and other traditional cryptocurrencies has raised concern about their capacity to function as a good store of value, investment, or hedge. Stablecoins, a kind of cryptocurrency that backed by physical or financial assets, have emerged as a potential solution. However, the latest failures of some algorithmic stablecoins and depegging of fiat-backed stablecoins have demonstrated that not all stablecoins can guarantee their stability. This study examines precious metal–backed stablecoins as a more stable alternative and attempts to identify the most suitable metal. We employed MGARCH-DCC, wavelet coherence, and simulation-based optimization techniques to explore the optimal precious metal for this purpose. Our findings indicate that a combination of gold and silver at a ratio of 88:12 is optimal. We offer critical policy implications and recommendations for various stakeholders.
ISSN:2214-8450
DOI:10.1016/j.bir.2023.07.004