Stablecoins have become an increasingly popular topic in the cryptocurrency space. These digital assets are pegged to the value of a traditional currency, such as the US dollar, and are designed to minimize price volatility. In our article „A Systematic Literature Review of Empirical Research on Stablecoins“ that was recently published in the academic journal „FinTech“ we revealed key findings of previous studies and promising areas for future research.
The study, for which we reviewed a sample of 22 peer-reviewed articles, found three major clusters of research on stablecoins. The first cluster focuses on the stability or volatility of different stablecoins, their designs and safe haven-properties. The second cluster examines the interrelations of stablecoins with other crypto assets and markets, specifically Bitcoin. The third cluster investigates the relationship of stablecoins with (non-crypto) macroeconomic factors.
While these research topics are important, we note that future research should explore more diverse methodological approaches, data sources, and different stablecoins or more granular datasets. More specifically, we identify five significant and promising areas for future research:
- Stablecoins in emerging markets: Countries like Turkey and Argentina have high inflation rates, which can lead citizens to turn their savings into US dollars. However, not all parts of the population have broad access to the banking system, financial markets or US dollar accounts, due to regulations such as capital controls. Stablecoins may provide an option for people in these countries to access capital markets in the first place or obtain foreign currencies, e.g., US dollars over their domestic currencies in particular. An important dimension to explore is the possibility of regulatory intervention to support local currencies as a potential limitation to growth and adoption of stablecoins in emerging economies.
- The effect of stablecoins on the stability of fiat currencies: With a market capitalization of $150 billion by October 2022, stablecoins have the potential to affect the stability of currencies in general, and those of smaller and emerging economies in particular. For example, capital might be channeled from a small domestic currency to the US dollar, causing a drop in the exchange rate between the currency and the US dollar. A possible approach to study this relationship is to triangulate data from foreign exchange (forex) rates with data from stablecoin markets against a specific currency.
- Analysis of stablecoin users: Currently, little is known about stablecoin users, their motivations and usage patterns. Users of stablecoins might be a homogenous group or differ in various respects. One or more (representative) surveys among stablecoin users in general or within specific populations/countries are a promising way to find out about the socioeconomic profiles of stablecoin users and their behavioral intentions and usage patterns of stablecoins.
- Adoption and use cases of stablecoins outside of crypto markets: Stablecoins have the potential to be used in various industries and applications, such as in e-commerce, remittances, and even as an alternative means of payment to the traditional system for everyday transactions. Further research in this area could help to understand the potential for stablecoins to be used in these contexts and identify any potential barriers to adoption.
- Algorithmic stablecoins: Algorithmic stablecoins are a newer type of stablecoin that are not collateralized 1:1 with fiat currency but rather use an algorithm to maintain a stable value backed solely or in parts by cryptoassets. These stablecoins have received increasing attention and interest in the market, but there is limited research on their characteristics and potential impact on the market. Future research in this area could provide insight into the design and operation of algorithmic stablecoins, and how they compare to traditional stablecoins.
In conclusion, stablecoins represent an important and rapidly evolving area of research. The findings of this literature review suggest that there is ample scope for future research opportunities. As the stablecoin market continues to grow, it is important for researchers to continue to explore the topic(s) in order to better understand this new and innovative financial technology and asset class.