Stablecoins Peg

    Feberuary 06, 2022

    I show the hourly price deviation of four stablecoins during the last month. I also measure the correlation of price volatility between stablecoins. Finally, I measure and rank the standard deviation from the peg of each stablecoin.

    From January 05 to February 05, 2022, MIM had the highest standard deviation from the US dollar peg. During this period, price movements of MIM had a moderately low correlation with the price movements of USDC (R=0.34).

    Of the four stablecoins in this analysis, USDT stayed closest to the US dollar peg.

    Loading...
    Loading...
    Loading...
    Loading...
    Loading...
    Loading...
    Loading...

    Peg Deviations: UST-Terra vs USDT-Ethereum

    Peg Deviations: MIM vs Other Stablecoins

    Loading...

    The standard deviation is the average amount of variability in a dataset. It measures, on average, how far each value lies from the mean. For stablecoins, a lower standard deviation means the asset remains closer to its peg.

    There is no correlation between the hourly price movements of MIM-Ethereum and Terra-UST.

    There is a moderately-low correlation between the hourly price movements of MIM-Ethereum and USDC-Ethereum.

    1- Abstract

    2- Methodology

    3- Results

    4- Discussion

    I pull the hourly prices of stablecoins from Flipside Crypto. The prices are expressed in fiat dollars. When a stablecoin deviates from the dollar Peg, its USD value is no longer exactly 1.00.

    Most of the data come from the 'ethereum.token_prices_hourly' schema. The only exception is the price of Terra UST, which is pulled from the 'terra.oracle_prices' schema. To obtain the hourly price of UST, I apply the avg() function to the price of UST over periods of one hour.

    Limitations:

    The price of Terra UST is pulled from 'terra.oracle_prices' while every other stablecoin price comes from the 'ethereum.token_prices_hourly' schema.

    The Ethereum database maintains hourly prices. I do not know if this hourly price is taken at the beginning of the hour, at the end of the hour, or as the average price over a period of one hour.

    The Terra database stores prices at every block timestamp (more than 100 times per hour). To obtain hourly prices, I averaged the price of UST during periods of one hour.

    It is possible that the hourly price information from the Ethereum database is not measured using the same method that I used for Terra UST.

    Finally, block timestamps on Ethereum and Terra do not begin and end at precisely the same time. This may have a small effect when comparing deviations from the Peg between Ethereum stablecoins and Terra-UST.

    Further research comparing the price stability of stablecoins in different periods would reveal how they perform in various conditions.

    Stablecoins are cryptocurrencies that attempt to peg their market price to some external reference. In most cases the target peg is the US dollar, but some cryptocurrencies peg to other currencies or commodities like gold.

    I measure the hourly pricing deviations from the dollar peg of the following stablecoins:

    Stablecoins achieve their price stability via collateralization (backing) or through algorithmic mechanisms of buying and selling the reference asset or its derivatives.ยน

    USDC and USDT are stablecoins backed by reserves. MIM and UST are algorithmic stablecoins.

    Loading...

    There is a weak association between the hourly price movements of MIM-Ethereum and USDT-Ethereum.

    There is weak, inverse association between the hourly price movements of UST-Terra and USDT-Ethereum.

    During the one-month period of observation, MIM had the highest hourly price deviations from the peg. USDT had the lowest.

    As a group, reserve-backed stablecoins prices remained closer to peg when compared to algorithmic stablecoins.

    Trust and confidence in a stablecoin are also factors that determine how closely the asset maintains its peg. In mid-January, Wonderland suffered from negative sentiment following revelations that its multi-sig owner and CFO was previously convicted of financial fraud. This sudden erosion of trust triggered a bank run on Wonderland's MIM stablecoin. This bank run put tremendous pressure on MIM, causing it to temporarily lose its peg to the US dollar.

    Like this post?

    • Follow me on Twitter: streamust, or
    • Hire me as a freelancer, consultant or employee.

    This negative sentiment also extended to UST and the Terra ecosystem. This is because significant amounts of MIM were deposited into Terra's Anchor Earn savings accounts.

    Both MIM and UST experienced significant de-pegging events during the last month. Surprisingly, there was no correlation between the price movements of the two stablecoins.

    USDC and USDT remained closer to peg during this period, with USDT achieving the best price stability.

    Overall, reserve-backed stablecoins performed better than algorithmic stablecoins. I do not know if this is because their underlying mechanism is more robust, or because the Wonderland trust crisis affected MIM and UST more directly.

    Another interesting research topic would be to compare of the price deviations of the same stablecoin on different chains. For example, comparing the price of native MIM on Ethereum to the prices of wrapped MIM on Terra, Solana, Arbitrum and Binance.


    Thank you for reading!