One Dollar, Many Flavors: Inferring Preferences for Stablecoins

Shai Bernstein

Some stablecoins are centralized and backed by cash-like assets, while others are decentralized and backed by crypto-assets or algorithmic investment tokens. In this presentation, Shai Bernstein (HBS) discusses what drives market preferences toward different stablecoin designs, and whether these preferences change over time. Shai collected trading activity from Curve, a decentralized exchange that facilitates swaps between different stablecoins pegged to the same underlying asset. He relied on a host of event studies to identify shocks that increase de-pegging risk and regulatory uncertainty. The results suggest that during periods of heightened uncertainty, markets rush towards fully collateralized, centralized, and transparent stablecoins. But an increase in regulatory uncertainty drives the market toward decentralized and more opaque stablecoins, which may be more immune to regulatory reach. Using wallet-level information, he characterizes market reaction by traders’ level of sophistication. The findings highlight the need for regulatory clarity that is uniform across all jurisdictions.

About the speaker

Shai is a Professor in the Entrepreneurial Management Unit at Harvard Business School, a researcher at the National Bureau of Economic Research (NBER), and the co-director of the Crypto, Fintech, and Web3 lab at HBS. He studies Entrepreneurial Ecosystems, with an emphasis on the impact of private capital markets on their evolution. He teaches the Entrepreneurial Finance course in the MBA elective curriculum, and a short intensive course on web3. Shai completed his Ph.D. in Business Economics at Harvard University. Before joining HBS, Shai spent eight years as a faculty at Stanford Graduate School of Business.

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