New research presented at Warwick Business School’s Gillmore Centre for Financial Technology conference suggests that US Federal Reserve monetary policy has a limited influence on stablecoin lending rates. The study, conducted by Andrea Barbon of the University of St. Gallen, analysed 2.5 million transactions involving US dollar-backed stablecoins on the DeFi platform Aave.
The findings were presented at an academic conference on DeFi and digital currencies held at WBS London at The Shard, attended by representatives from the European Central Bank, the Bank for International Settlements (BIS), and Banque de France.
The research argues that despite stablecoins being pegged to the US dollar, their interest rates are primarily driven by factors within the cryptocurrency ecosystem rather than traditional monetary policy controls. With stablecoin market capitalisation reportedly at $250billion, a key theme of the conference was the need for central banks to take greater notice of their influence, especially in light of potential regulatory changes like the proposed US ‘Genius Act’.
Crypto-specific factors driving volatility
Professor Barbon explained that stablecoin interest rates exhibit high volatility and largely resist traditional controls from central banks.
“US monetary policy does influence stablecoin rates, but its effect is minimal, explaining only a limited portion of their variation,” stated Barbon. “The majority of the volatility is driven by factors specific to the crypto ecosystem, particularly demand-driven shocks related to the desire for leverage to invest in other crypto assets like Bitcoin.”
The research also identified a significant time lag in the market’s response. When stablecoin rates did react to changes in the Fed’s interest rates, there was often a delay of several days, sometimes up to a week.
“This is an immature market with rates primarily driven by the volatile demand for leverage within the crypto ecosystem, which is not directly tied to traditional monetary policy,” Barbon added. “As stablecoins grow and with the new Genius Act, central banks will need to have more oversight of the stablecoin market and its influence.”
Wider research on digital asset trends
The conference featured several other presentations on digital assets and financial technology. Maarten van Oordt of Vrije Universiteit Amsterdam presented research on the formation of bubbles in cryptocurrency prices, while the BIS discussed cross-border flows of bitcoin, ethereum, and stablecoins.
Further presentations covered blockchain technology from academics at the University of Bonn, Carnegie Mellon University, and George Mason University. Daniel Ruf of the University of Cambridge presented a study on credit cycles in tokenised real estate markets, and Christine Parlour of Haas School of Business, UC Berkeley, discussed liquid staking on the Ethereum platform.
Ram Gopal, director of the Gillmore Centre for Financial Technology at Warwick Business School, commented: “This conference has been a truly revealing experience, highlighting the complex and evolving dynamics where traditional finance meets the decentralised world of fintech. The research presented here, particularly on topics like the limited influence of central banks on stablecoin rates, is a testament to the fact that our work at the Gillmore Centre isn’t just academic – it’s actively shaping the global conversation around financial stability, policy, and innovation.”
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