Abstract
This paper examines the dynamics of Tether, the stablecoin with the largest market capitalization. We show that the distributional and dynamic properties of Tether/USD rates have been evolving between 2017 - 2021. We use local analysis methods to detect local trends and time-varying volatility and persistence. To accommodate these dynamic patterns, we introduce the time-varying parameter Double Autoregressive tvDAR(1) process under the assumption of local stationarity of Tether/USD rates. We also propose a set of simple plug-in measures of stability based on the Lyapunov exponent for assessing and comparing the stability of Tether and other stablecoins. We show the consistency of stability measure estimators and study their distributional properties. The tvDAR model is estimated on Tether prices and compared with other stablecoins. We find that it provides good fit to data with time-varying persistence and volatility and produces reliable out-of-sample forecasts at short horizons. In the application, the proposed stability measures provide reliable indicators of local explosive patterns for stablecoin monitoring.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
