Rutgers economist Bruce Mizrach is available to comment on new Rutgers research that analyzes the stability of stablecoins, a cryptocurrency whose value is tied to an outside asset such as the U.S. dollar.
“The financial industry has continued to develop new forms of payment,” said Mizrach. “Credit and debit cards and automated clearinghouse transactions were the key developments of the late 20th century. Venmo and PayPal came along in the early 21st century. The latest, stablecoins, are competitors to other payment methods like credit cards, bank-based bill payment systems and cash. Unlike Bitcoin, stablecoins are not supposed to fluctuate in value.
“The most popular and widely accepted stablecoin is Tether, which was used over 16 million times in the first quarter of 2021 by 13 million network addresses to finance more than 500 billion in transactions. But over 25% of stablecoin projects have failed. While transaction fees have been low, they are rising because the fees are tied to the cost of Ethereum, which like Bitcoin has been rising in value. Even though the successful coins have stable values, they are traded on numerous exchanges by high-frequency firms to hold safe assets between trades. Therefore, this class of ‘stable’ assets might not be so stable after all. Central banks who are considering creating their own digital currencies and younger folks who use Venmo for everyday transactions should keep an eye on this.”
To view the full study, click here.
Mizrach, a professor in at Rutgers-New Brunswick’s Department of Economics, is the founder and editor of Studies in Nonlinear Dynamics and Econometrics, which uses nonlinear analysis to understand economic and financial markets.