Abstract
Purpose – This paper aims to systematically investigate and compare the hedge and safe-haven properties of stablecoins against international indices. It distinguishes itself from the existing literature by examining how risk-mitigation capabilities differ based on a stablecoin’s underlying collateral mechanism.
Design/methodology/approach – The authors employ a DCC-GARCH model to analyze the time-varying correlations between a large sample of 44 stablecoins and 30 international indices from October 2022 to September 2024. A core innovation is the systematic classification of stablecoins into five distinct categories (fiat-backed, algorithmic, crypto-collateral, physical gold-backed and synthetic assets-backed) to conduct a granular comparative analysis. Rolling window analysis is also utilized to assess these properties over shorter investment horizons.
Findings – The study reveals that hedge and safe-haven properties are highly heterogeneous and depend critically on the stablecoin’s design. Synthetic assets-backed stablecoins demonstrate overwhelmingly superior performance, acting as a strong hedge and weak safe haven for 21 of the 30 indices analyzed. In stark contrast, fiat-backed stablecoins, the largest market segment, exhibit very limited risk-mitigation capabilities.
Practical implications – The findings provide crucial insights for both investors and policymakers. Investors seeking portfolio diversification should not treat all stablecoins as equal; synthetic asset-backed stablecoins are shown to be far more effective for managing risk against global equity downturns. For regulators, the paper highlights the urgent need for stringent oversight of fiat-backed reserves, while also noting that the effective but complex nature of decentralized synthetic stablecoins presents a different set of regulatory challenges and opportunities.
Originality/value – This paper makes a significant contribution by providing the first comprehensive, classification-based analysis of stablecoins’ role as potential risk-mitigation assets against a broad array of international stock indices. It challenges the monolithic view of “stablecoins” by empirically demonstrating that the underlying collateral design is the key determinant of their effectiveness as a hedge or safe haven.
