Beyond Reserves: Linking Blockchain Performance to Stablecoin Stability

• Blockchain Fees and Throughput Matter: While blockchain-specific metrics are not the primary determinants of stablecoin peg stability, our study finds that transaction fees and throughput are statistically significant factors influencing USDC price deviations. These effects are likely indirect, operating through their impact on arbitrage efficiency.
• Longer Block Times Linked to Lower Deviations: Contrary to conventional expectations, higher block times are associated with reduced USDC price deviations. This is interpreted not as a direct causal relationship, but rather as a reflection of the characteristics of more established networks which, despite longer block times, benefit from deeper liquidity and greater market robustness, facilitating more efficient arbitrage.
• Newer Blockchains Exhibit Slightly Higher Deviations: After controlling for explanatory variables, both USDC and USDT tend to exhibit slightly higher peg deviations when traded on newer blockchains with shallower market capitalization compared to Ethereum.

Implications:

These findings underscore the importance of blockchain infrastructure in supporting stablecoin price stability, particularly through its influence on arbitrage mechanisms. The research suggests that while other factors – such as reserve management and asset quality – remain more relevant when it comes to ensuring peg stability, the operational characteristics of the underlying blockchain can play a non-negligible role in maintaining stablecoin pegs, especially as stablecoins expand to newer and less liquid networks.