Modern Money and Banking
Paper Session
Sunday, Jan. 8, 2023 10:15 AM - 12:15 PM (CST)
- Chair: Guillermo L. Ordonez, University of Pennsylvania
Blockchain Analysis of the Bitcoin Market
Abstract
In this paper, we provide a detailed analysis of the Bitcoin network and its main participants. We build a novel database using a large number of public and proprietary sources to link Bitcoin addresses to real entities and develop a methodology to extract information about the behavior of the main market participants. We conduct three major pieces of analysis of the Bitcoin eco-system. First, we analyze the transaction volume and network structure of the main participants on the blockchain. Second, we document the concentration and regional composition of the miners which are the backbone of the verification protocol and ensure the integrity of the blockchain ledger. Finally, we analyze the ownership concentration of the largest holders of Bitcoin.Stablecoins: Adoption and Fragility
Abstract
Stablecoins are a new form of digital private money that promises a stable and secure way to park funds in the crypto universe. The dominant stablecoins are pegged one-to-one to the US dollar. Like banks or money market funds, stablecoin issuers face the risk of runs and coin holders are sensitive to adverse information about the quality of the issuer's reserves and exposures to custodial, operational, and technological risk. This paper develops a theoretical framework that allows to study the determinants of stablecoin adoption and fragility. It offers insights for the risk assessment and appropriate regulation of stablecoins, as well as new testable implications. Under the premise that stablecoins offer a benefit for certain use cases that differs across potential stablecoin holders, a wider adoption of stablecoins is associated with a destabilizing composition effect. Therefore, new adopters pose a negative externality on other coin holders. Positive network effects can counter this destabilizing composition effect. However, they can also give rise to a different negative externality if a wider adoption undermines the role of bank deposits as a means of payment. Both externalities promote excessive adoption. Factors that increase the issuer's revenue from fees and seigniorage improve stability, as do congestion effects that cause higher transaction costs during periods of crypto market turmoil. The existence of a stablecoin lending market tends to promote both stability and adoption, provided the benefits are not eroded by speculation. Finally, introducing a moral hazard problem offers insights for the management of reserves and for disclosure.Platforms, Tokens, and Interoperability
Abstract
We model the interaction between three services a platform provides: matching in the goods market, token money creation, and credit extension. The platform designs interoperability to restrict competition with the public marketplace and possible platform entrants. We identify three forms of relevant interoperability: exchangeability, acceptability, and ledger portability. Limiting exchangeability of tokens “locks-in” customers and discourages platform entry. Limiting which currency sellers can accept improves the platform’s ability to enforce “smart” credit contracts. Improving ledger portability makes entrant threats less credible. A legal tender CBDC does not necessarily give policy makers the optimal trade-off between regulating the different forms of interoperability.JEL Classifications
- E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
- G23 - Non-bank Financial Institutions; Financial Instruments; Institutional Investors