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arXiv · 2301.00509

Time-Varying Coefficient DAR Model and Stability Measures for Stablecoin Prices: An Application to Tether

Antoine Djobenou·Emre Inan·Joann Jasiak
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Abstract

This paper examines the dynamics of Tether, the stablecoin with the largest market capitalization. We show that the distributional and dynamic properties of Tether/USD rates have been evolving from 2017 to 2021. We use local analysis methods to detect and describe the local patterns, such as short-lived trends, time-varying volatility and persistence. To accommodate these patterns, we consider a time varying parameter Double Autoregressive tvDAR(1) model under the assumption of local stationarity of Tether/USD rates. We estimate the tvDAR model non-parametrically and test hypotheses on the functional parameters. In the application to Tether, the model provides a good fit and reliable out-of-sample forecasts at short horizons, while being robust to time-varying persistence and volatility. In addition, the model yields a simple plug-in measure of stability for Tether and other stablecoins for assessing and comparing their stability.

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Antoine Djobenou, Emre Inan, Joann Jasiak. 2023-01-02. Time-Varying Coefficient DAR Model and Stability Measures for Stablecoin Prices: An Application to Tether. https://arxiv.org/abs/2301.00509

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