From Crypto to Currency: What Stablecoins Are Doing to Money and Markets

Dollar on a blockchain: how stablecoins became money

Have stablecoins moved beyond crypto-market speculation to function as genuine tokenized money, and if so, what does that imply for bank deposits, credit creation, and the design of regulatory frameworks?  This is the question Lin William Cong, Gordon Liao, Eswar S. Prasad, and Tony Zhang analyze in this paper.
The authors present five facts using four complementary methods on Ethereum blockchain data covering all USDC and USDT transactions from 2020 to 2025:

1. Descriptive on-chain analysis:— circulation, velocity, and transaction-size distributions aggregated across all chains to establish stablecoins’ payment character (Facts 1 & 5).
2. Bayesian geographic attribution: wallet locations inferred by combining the industry-standard visitor-share prior with a Bayesian update based on each wallet’s circadian transaction-timing pattern (Fact 2).
3. Structural cash-management model:  the Alvarez-Lippi (2009) inventory model estimated on wallet-level data via GMM, recovering the frequency of costless replenishment and per-deposit transaction costs as structural parameters (Fact 3).
4. Balance-sheet accounting:  a one-dollar issuance exercise that traces reserve placements across three possible channels to bound the deposit-erosion effect (Fact 4).

The five facts:

1. Stablecoins are a transaction currency. On-chain volume now exceeds Bitcoin’s fourfold, velocity is high and rising. By 2025 36% of transactions were below $1,  driven by a collapse in transfer costs from $18 to under $1.
2. Activity is global but mostly domestic. Volume is split roughly equally across the Americas, EMEA, and APAC, but the industry standard overstates cross-border flows by 15–22 percentage points. Most volume flows within regions. The Americas is a net exporter of stablecoins; APAC is accumulating balances rapidly.
3. Wallets behave like cash wallets. Stablecoin wallet behavior fits a classical cash-management model: periodic top-ups, precautionary buffers, and turnover rates comparable to households managing physical cash. Access is getting cheaper and easier since 2023.
4. On-chain credit is expanding, and bank deposits are not being destroyed. Secured DeFi lending has quadrupled in two years; unsecured on-chain lending grew 459% since mid-2025. A balance-sheet exercise shows stablecoin issuance relabels rather than drains deposits as a result, the net deposit effect is negligible and at central readings mildly positive.
5. Stablecoins are becoming programmable and machine-operated. In 2025, 69% of transfer volume involved a smart contract. Early AI-agent payment protocols enable autonomous sub-cent transactions, a use case no conventional payment rail can support.

Five Facts About Stablecoins
Authors: Lin William Cong, Gordon Liao, Eswar S. Prasad, Tony Zhang
From: Nanyang Technological University, Circle Internet Financial, Cornell University, Arizona State University

Identifying stablecoin shocks: effects on yields, the dollar, and equity markets

Does the growth of stablecoins affect US financial markets and if so, through which channels and for which market participants?  This is the question Eugenio Cerutti, Melih Firat, Martina Hengge, and Takaaki Sagawa analyze in this paper.
The authors construct novel high-frequency measures of stablecoin shocks using two complementary identification strategies:

1. Narrative identification: the authors manually screen Google News from 2019 to 2025 for stablecoin-specific events (regulatory announcements, partnerships, Fed remarks) uncontaminated by broader macro or crypto developments, yielding 50 events. Daily changes in combined USDC/USDT market cap on those days serve as instruments in an event-study. The key assumption is that stablecoin shock variance is higher on event days than on control days.
2. Max-share identification: as a robustness check, stablecoin shocks are recovered within a VAR as the structural disturbance that maximizes forecast-error variance of stablecoin market cap.

Findings

• A 1% increase in stablecoin market cap lowers the 1-month T-bill yield by 1.9 basis points persistently (peak effect around weeks 2–4), consistent with issuers’ heavy T-bill reserve holdings.
• The broad dollar index depreciates modestly (0.09%), indicating that portfolio-rebalancing away from US assets dominates any appreciation from foreign stablecoin demand.
• Payment providers (PayPal, Square, Coinbase, Adyen) show significant positive equity responses; banks, including community and small banks, show none, suggesting markets price no meaningful deposit disintermediation risk.

Stablecoin Shocks
Authors: Eugenio Cerutti, Melih Firat, Martina Hengge, Takaaki Sagawa
From: IMF