On The Brink with Castle Island - Prof. Ladislav Krištoufek (Charles University) on the market effects of stablecoin issuance (EP.171)

Episode Date: January 25, 2021

Economics professor at Charles University Ladislav Krištoufek joins us for a discussion centered on his new paper, On the Role of Stablecoins in Cryptoasset Pricing Dynamics. In this episode:  How Ladislav began covering crypto markets in 2013 Ladislav's research agenda as it pertains to the crypto markets Why the quality of so much Bitcoin academia is dubious The academic-practitioner gap and how to close it How Ladislav came to write his newest paper Methodological details How to interpret the findings in the paper Whether issuance of stablecoins affects the price of bitcoin Ladislav's critiques of the Griffin and Shams paper Key takeaways from Ladislav's paper Ladislav's ultimate explanation for stablecoin issuance Other papers Ladislav recommends on stablecoins Also mentioned:  'What Keeps Stablecoins Stable?', OTB discussion with Ganesh Viswanath-Natraj Is Bitcoin Really Untethered? by Griffin and Shams

Hello and welcome back to On the Brink. Today we have a very timely episode. As I'm sure many of you are aware, there's a number of scandalous claims circulating around the stable coin tether and its putative effect on Bitcoin and crypto markets. At the core of many of these claims is an econometric analysis purportedly connecting tether issuance to changes in the Bitcoin price. Now, there was one infamous paper by Griffin and Chams that covered this, and then a number of other papers contesting, or, contextualizing these results or just finding completely alternative results. We already talked to Ganesh Vizwanath Natraj on the show about his interesting paper on the topic, and recently came across a new one called On the Roll of Stable Coins in the Cryptoasset Priced Dynamics by Ladislav Christ Dufek, who's a professor at the Charles University in Chuck Republic. Now, Ladislav's paper is interesting because it expands the sample period to a full five years, which prior work on the topic did not do and covers all stable coins aside from just tether

to examine their effect on Bitcoin and all coin markets. And to spoil the results, Vladislav argues that the stable coin issuance generally reflects an increasing demand for investing in crypto asset as opposed to serving as a boosting mechanism for the price. However, the methodology is somewhat dense and pretty intense from an econometric perspective. so I thought I would get Professor Chris Dufek on the show directly to explain his method and to talk through his critiques of the Griffin and Champs paper, which are quite substantial. So please enjoy the episode.

Hopefully this leaves you slightly more elucid on the topic of stable coins. Let's jump right into it. Brought down by bad mortgage investments, Lehman, which has 25,000 employees, will be liquidated. The federal government loans American International Group, AIG, $85 billion. This is a different kind of market. And the Fed is a... The federal government is stepping it to stabilize Fannie Mae and Freddie Mac, the two mortgage giants that have been threatened by the housing crisis. The Bank of England has pumped 75 billion pounds more to Britain's ailing economy with a new round of quantitative easing.

You print a couple trillion dollars and all of a sudden people start to worry. So out of this worry, we have something called the Bitcoin. Well, Wadislav, thank you so much for joining us today. Hi, thanks for having me. A pleasure. this is actually the second time we have had a academic come on the show to talk about stable coins the first time was ganesh viswanath natrash i don't know if you read the paper he co-authored what keeps stable coin stable yeah i did i actually cite it in the paper we will talk about today

excellent excellent so you have written a paper not just on tether which is obviously you know the stable coin du jour, but you're covering all major stable coins. And so your paper is on the role of stable coins in the crypto assets pricing dynamics. I came across this one very recently. Very interesting paper. We're going to get into that. But maybe before we do that, could you tell us a little about a little bit about yourself and your academic background and how you came to focus on crypto as a field of study? So my major field is economics. I have bachelor's, master's and PhD in economics.

And that's where I work. And mostly I finished a PhD in 2013. And crypto wasn't really the main part of either my studies or of my research. Back then, of course, if it's 2013, it's still quite early in the Bitcoin history. But I got to the topic of Bitcoin most well crypto in general, but back then it was mostly Bitcoin anyway. In 2013, actually when I when I was working on use of online data for for economic purposes, let's say or how these can be used for for modeling various various economic or financial processes because back then there were several papers that used

Google Trends data or Wikipedia usage or page views data for modeling the returns of stocks of specific companies. There were several papers about using the Google Trends for modeling unemployment. So how people look for jobs, you can use it as some kind of a quick insight into what people are doing before you see what's actually happening in the market because many macroeconomics, macroeconomic variables are being reported with a lack of several months so you can somehow now cast, let's say, so not forecast, but now cast some of these processes. And I was looking into something that might be interesting and new with that. And I came across Bitcoin quite randomly or coincidentally, but I thought that it would be

quite a good idea to see what this back then very, very important. new idea three four years that is believed to be mostly speculative or like attention driven or interest driven mostly not necessarily driven by fundamentals at least back then it was the it was the consensus so to see whether these kinds of online data can be used for for that and that's when when I first got into it and my my first paper on Bitcoin in in nature scientific reports is actually about this so how to how to use the interest of people or investors but people in general that can be modeled or somehow followed using google trends searches or google trends data and wikipedia

pages views and it turned out that that these could be used pretty pretty well and it was i believe actually maybe the very first financial paper that got published on the topic of the topic of Bitcoin and by published I mean like in in our research journal back then. So that was how I got how I got to it first. So it was in 2013. So you've been covering Bitcoin and crypto as a research agenda for a fairly long time. This is and you've done other papers aside from that first one that you mentioned as well, right? Yeah, yeah. So the first one in 2013 was mostly about this speculative component. And then two years after that, I got a second paper published in 2015, and it was from, let's say, from the other side.

So looking at the fundamentals of Bitcoin pricing, so whether some technical specifications, in addition to some safe haven properties and other stuff, whether these fundamentals can actually be used to model the price. or let's say intrepret or somehow explain the price of Bitcoin. Because back then really the consensus still in 2015 was that the price, you know, should be zero or there is no real value to it. So my idea was, okay, so let's let's just see, let's get the data and let's give it a fair trial in a way and see what's what. And the results were actually in a way surprising that not only the attention-based variables again Wikipedia and and Google trends were important for the for the pricing

dynamics but also the the fundamental the fundamental variables behind were important mostly in the long term which made sense so that was the the other paper which is which was quite important so it was putting both these two things together so the speculative component and the and the fundamental component of the the price dynamics. And these are actually my two most cited papers now, or at least when I look at scholar citations, these now are the most cited ones, which is quite funny in a way, because when I look back to 2015, that, you know, the popularity certainly wasn't what it was in 2017 or

now, so I didn't really expect it to be most cited things I have. Right. But you don't you don't wholly specialize in cryptocurrency. That's just kind of a sub-nachian. You have other focuses, right? Yeah. Like my, well, it's quite hard to put some main thing I'm doing. As I said, I'm an economist or my main field is economics. I'm educated in this field.

My academic career is in that field. So it cannot really be that that crypto would be my main research focus. So I had different things. I have I focus on energy economics or energy finance, where I have various things connected to biofuels to electricity modeling and other things. I also have these online data utilization, let's say, in economic and financial processes and and various other other things my my research topics I are quite heterogeneous I would say and you know it's it would be quite difficult to to keep a track in or at an

economics department with a sole a sole topic of of cryptocurrencies it has changed a bit in in last few years because now I am a full professor at my at my institution and in the Czech Republic where I where I'm from and where I hold position the thing is that you need to the the tenure track is not the same way as in the US so it's not really a tenure but you need to you need to meet some criteria for becoming a professor but you also need to present your research in front of a research committee which is you know quite metrogenous it's for the whole university and you kind of need to defend what you're doing and i was quite bold because my my topic was actually cryptocurrencies which was was quite

risky in a way but it but it worked out so you know the the times are changing let's say yeah yeah you took a chance on like many of us he took a chance on crypto and it paid off So when you think about your peers, especially in particular other economists and their output and their publications as it concerns cryptocurrency, what's your sort of prevailing attitude towards the body of academic work? Because I certainly have opinions on my own when it comes to being a practitioner and engaging with academia. But I'm curious as to your impressions as to sort of the general quality of academic output as it concerns Bitcoin and crypto. Yeah. I think there is a huge gap between the practitioners and the academics, which is not a good thing. But that's what happens.

And the tricky part is that the publications in crypto or like the journal, the research journals publications in crypto are quite cyclical, I would say. So they are very correlated with the Bitcoin price, which is in a way funny. But what I find problematic, because I have these two, let's say, historical papers, even though they are just a few years old, but from crypto perspective, these are old papers 2013 and 2015. So I read a lot of papers for reviews. I got sent many papers for reviews.

And what I find really problematic is that there are many, many papers. I'm not saying all of them, but many papers are in a way just let's take the data. You know, there's a lot of loads of data for crypto and let's treat it as standard financial assets that we know. And let's just utilize or use a methodology that we already know that we already used in our paper. and just you know run the data through it report the results and try to get it published and then the the outcome is not it's not good because you really need to you know you need to provide some added value of your research and just listing or reporting the results is certainly not enough and specifically here where

where the the crypto markets are very specific they have they have they have very specific characteristics they need to be taken into consideration when you are interpreting the results when you are trying to provide some kind of you know like recommendations or whatever you can think of so that's i think that that's quite problematic so it leads to again i don't want to say a huge majority of papers not being good or not as good as they could be but it's a I think it's a big problem and there are only several papers that are actually good, I believe, that really, you know, understand or at least try to understand what is going on. I'm not saying, you know, my papers from 2013, 2015, if I, if I, you know, had to rewrite them now,

they would be certainly different. I've learned a lot from back then. But as you said, back then, it was kind of a niche thing. It was like, you know, let's try. this let's let's have the data let's have a data let's have some data set let's run analysis but I even back then I actually read about it a lot and I tried to interpret stuff and that's a that's a big difference and that's what actually led me to my to the to the paper that we will talk about more in detail about the the tether or the stable coins paper because as I said when I when I was reading all those all those papers that came to me many of them had tether as a standard cryptocurrency, you know.

And many, many of these papers were like surprised that, you know, now we have this tether. It doesn't move. It's not really correlated. So it's surprising. Well, it's not. If you just, you know, look up what tether is and what stable coins are, that's their definition, right? And when I read, I don't know, like 10, 15. papers that had this similar thing, you know, so not even knowing that tether is a stable

coin and that it's not surprising that it doesn't move much or at all almost. And I was like, okay, so let's try, let's try to do it a proper look. Let's try to figure out what's going on there, whether there is a research question that might be interesting and try to do that. So I was like sticking to my research strategy, which is if there is some controversy and there is data for it, let's give it fair trial. Let's perform the analysis and let's see what's going on. And that's what led me to this paper. Got it. So before we get into the paper, to address your critique of sort of academia as it pertains to crypto, I mean, how would you recommend that academic?

give a fair treatment to the crypto industry. Is it a matter of coming in with an unbiased perspective? Is it a matter of actually becoming a market participant and playing around with these protocols or talking more to folks that are active in the markets? What would you recommend there? I think it depends. It kind of depends on what field you're in. Like from the perspective of economics, so not computer science or really getting

into because I don't think that for economists economists is really necessary to get into the protocol details even though economics now is really like getting close to data science and these these things still um still it's not it's not computer science you know so that might be a bit bit problematic but um I think that what is needed is to um to take your time in a way you know spend some time in the field I'm not saying that that people must or need to to play with their money in the pool, but it's certainly motivation. Like, I mean, if you have something invested, you probably want to know about it, and then you can use it in your papers, in your discussions,

and similar things. It will make your paper better, I believe. But it's not necessary. I think even just getting into some crypto-oriented groups, I don't know, even Facebook or Twitter, or something not, not, you know, super, super specialized, but still getting the feel what's going on in the, in the cryptosphere. And what the, what the ideas are, even though the, I think that in general,

the people that are there for a long time that know their stuff, the technical stuff, they are not necessarily friendly towards newcomers in a way. They can be, you know, like arrogant and not really. telling you if you're asking and stuff like that, but that happens everywhere anyway. But I think it's a, that's, you know, the time is worth spending there, at least, you know, seeing what the mood is and, you know, it will lead you to other things. You start Googling about stuff. You start reading, reading some blogs about it.

You get to people who are practitioners who know about it and you can just filter the information get to the bottom of it and then actually use it for telling a better story in your research because research is not just about running an empirical analysis and presenting or reporting the results, but it's mostly about telling a story and having something to come out of it. So your paper on the role of stable coins in the crypto assets pricing dynamics, when you were inspired to write this, was it in reaction to the existing literature? Or did you just kind of feel that it was an interesting question to consider? The second thing.

It was, well, what I talked about before a bit. So it was more a reaction to the fact that it seemed to me that a lot of people don't really, don't really in a way care what tether is. They don't reflect on it in their in their analysis at least that some of the published papers or the papers I I reviewed and and of course the second thing was that there there was this speculation or you know this feel that tether is just a price booster or or something like that that it's being printed out or issued without any any backing or stuff like that so these two things mainly so it wasn't really a reaction to to an existing literature because there is not much of the literature on the topic, actually,

at least in standard research journals. So it was more of a reaction to that. So tell me about the approach you use. I thought it was notable that you took a long sample period and you not only considered Tether, but a large number of stable coins. So maybe in plain terms tell us about the statistical methodology. statistical methodology that you used. Yeah.

So the methodology is actually quite simple. So the idea was to check whether really the issuance of stable coins or tether, but stable coins in general, even though, of course, tether is like large proportion of all stable coins that are out there. But overall to check what is going on there in the sense that if, the well to see whether the stable coins issuances are driving the prices of other crypto assets or whether it's the other way around because the idea was that if if really tether is just being used as a booster of a of some bull run or something then the issuances should come before the the price increases but if it's if it's more of a

sign of increasing demand into investing into into crypto assets so people want to get into it so they see that the prices are coming up so they try to you know get onto this formal train and they just want to invest so they purchase us d t or some other stable coins and they get to the market so the prices would come before or the the the price increase would come before there is an increase in in the in the number of of stable coins in circulation. And for this, there is a, there is rather standard methodological approach towards that in, in econometrics or time series analysis. And that's either a vector alter regression or or cointegration analysis or error correction model. So that's, that's what I used.

You know, in plain terms, it really just studies what comes first or what's the, what's the, what's the, impulse variable and was the response variable. And when I ran the analysis, I had several robustness checks, you know, because it went through a standard review process. So the referees asked for various things, which are all now in the new version of the paper on the SSRN. And it turns out that really for pretty much all the cases, it's really the case when or that the the price increases come before the before the stable coin or stable coins uh issuances so it really seems based on based on this analysis

that the the assuances of stable coins are really more more a sign of increasing increase demand in in investment into into crypto assets then that they are being just printed out to boost the dynamics. Because the thing is that this methodology allows for these impulse response functions where you see how a shock into one variable gets translated or transmits into other variables. And really there I found only the shock into Bitcoin and altcoins. I split it into Bitcoin and altcoins gets transmitted into. to the capitalization of the stable coins and not the other way around. So that's what I find or what I found there.

Yeah, so I'm looking at the paper right now. You have these great charts of the impulse response functions. And I think the really key one is the stable coins into Bitcoin. So it's the chart measuring the effect of stable coin issuance on the, is it the price or the market cap of Bitcoin? It's the market cap. On market cap, yeah. So it's basically a flat line.

So what that one shows is that as stable coins are issued, it doesn't really have a material effect on the price of Bitcoin. Is that sort of the right interpretation? Yeah, yeah, exactly. Like if you're probably looking at figure two there. So the flat line where it says stable coins and then right arrow to Bitcoin, it means when there is a shock into stable coins, so if there is some either increase or decrease, depends, of course, on the sign, there is pretty much no reaction.

in Bitcoin capitalization slash price because of course it these are not two these are not the same as we all know but the differences are not not huge the thing thing was that I used market capitalization for all all the assets there because first I had a set of stable coins and for them to use prices that doesn't make any sense and then I have a basket of alt coins and for them you need to construct some kind of an index right you don't have a price so you just i just took the the capitalizations because that's pretty much the only thing you can do because it's practically an index where you are uh waiting or weighing with uh with the no with the circulating supply

so that's that's what you can do but so that's from stable coins to bitcoin but when you look at the same figure um diagonally so bottom left you see the other direction so from Bitcoin to stable coins and you see this nice increasing line which gets to the effect of almost one actually around 0.8 so the transmission from from Bitcoin to stable coins is it's not perfect but it's very strong it's in the same direction so if the price increases then in in several days or then also months there is a long-term effect that leads to the increase in in the issuances of stable So these are two nice examples of what this analysis can do.

So you see a flat line or almost a flat line for the effect from stable coins to Bitcoin, but you see very strong and monotonous and positive effect from the Bitcoin increases to stable coin or stable coins issuances. How did you explain this? An increase in the price of Bitcoin increases the float of stable coins? Yeah, well, the way I see it is. is that it's mostly the effect of the formal effect in a way. So people see increasing prices.

So they want to get into the market. So they are purchasing or they are, well, trying to get their money in. And they are doing it through stable coins. So that's what leads to new issuances because there is demand for them. So in the paper, you also talk about the somewhat infamous Griffin and Shams paper. You discuss their model. And you guys don't have the exact. You don't have the same exact methodology as they do, but you cover it.

Maybe just before we talk about it. So their paper was published in the Journal of Finance. For our listeners, tell us a little bit about the credible. I mean, that's a credible journal, right? Yeah, that's like pretty much the top journal. There are two top journals in finance, and that's Journal of Finance. So this one and Journal of Financial Economics. These are two, like, top-notch journals.

The fact that it's a high-quality journal doesn't mean that it's impossible. that there are sort of results which aren't good in the papers. I mean, that doesn't preclude the papers from having mistakes, right? Although it just means that that's less likely, right? Yeah, well, it certainly means that it's less likely. It's also less likely that some marginal topic, let's say, would be published there. And crypto, certainly in 2017 and 18, when this paper was first, I think, published as a preprint, was still quite marginal.

So it can happen that, you know, it can get through even though it's not perfect. And that might be because there are not enough, let's say, specialists in the field that might identify what the problematic parts are. Because, I mean, methodologically, from a big picture perspective, the paper is quite sound, I would say, or it looks good. think or if I can get more more into it straight away. The methodology is quite nice. You know, it has it has networks, it has crypto, so it's really sexy in a way. And that might be, that might be tempting for journals to publish it. And I'm not saying the paper is bad.

I don't think, I don't think it's bad. but there are certainly some problems. Yeah, so let's dive in. I mean, you have an extended discussion of the Griffin and Champs paper. That's certainly the one that gets cited in the press the most. I've read the paper. I have my own issues with it, but yeah, I'm really, really curious to hear about your critiques of the paper. Yeah.

My biggest issue with it probably is the, well, for the listeners, the paper is trying to distinguish or identify. whether there is what they call a demand pool or supply push effect of tether on BitFinex. I think they were focusing on BitFinex and the year of 2017 and whether tether was just a boosting mechanism for that. And the issue is, at least from my point of view, is that these two approaches or hypotheses are not really given and, equal ground, I would put it. Because for the supply push, there are five hypotheses that they are testing later on. And they are, from my perspective, quite nicely specified, even though I kind of suspect that there are kind of a like post hoc created.

But still, well, I don't want to say why not because it's not, it's not why not. but still, let's say, I can get over that. But on the other hand, there are just two hypotheses for the demand pool. And there are both of them, even though in my paper I get more into the troubles of the first one, but both of them are quite problematic. Because the first one pretty much models the flows, the inflows to, into or inflows of tether and and Bitcoin into into BitFinex with respect to tether's price or returns. So you know economically they have that are they have the

dependent variable of either the the Bitcoin or tether flows into into this exchange and they are trying to explain it so the independent variables are our returns of tether and that's that's quite problematic. The reason why they do it is that they assume that the returns of tether somehow reflect the demand for tether, which by itself, well, I'm not sure if that is true, right? So if the demand for tether is high, whether the price actually increases because it gets pulled back to one anyway, because it's packed. So that's one thing that by itself it's bit problematic to have it like that. So then you have this joint hypothesis problem that you are testing the hypothesis that, again,

assumes something that is not, that is not, you know, axiomatic or that is not generally agreed upon. You know, it's something that would need to be tested also, whether it's true or not. So then when you reject or don't reject the hypothesis, the original one, you're not sure. whether it's because it's really like that or whether it's because your underlying hypothesis that's that's hidden in your second level hypothesis is actually true or not. So that that's one problem. But even from technical perspective or econometric perspective, the trouble is that as we know, Tether is a stable coin. It's packed to US dollar. So it's price. It's not always one. It's not exactly one.

but it's very close to one almost all the time. So the returns or the price changes are very tiny. So they are practically zero all the time, very close to zero. And that's that's a problem because standardly in econometrics or in empirical analysis in general, if you're trying to explain some variable with some other variable or variables, you want these explanatory variables, to have high variance or high variability because then you know you cannot explain much if you're if you're variable that is explaining um in this case the the tether flows or bitcoin flows if it's

the same all the time you cannot get any information from that um so then the the methodology can very easily take it as a constant term and you're and you standardly already have a constant term in in your your regression so then you have something close to two constants and you know not surprisingly then your result is that these returns these tether returns are not statistically significant but it's not not surprising because there is no variability in this variable so you know that's something you would expect normally and then you know, using it to to quite strongly claim that this is a, this is a proof for a sign that there is no demand pool is a bit questionable, let's say. And this and the second hypothesis

there is also relatively weak, but I don't want to get to in too much detail in that. I think the first one is the is the most is the most problematic one. I think it might be actually interesting to try to do some, so to replicate their study using the data, using newer data, and trying to come up with some better hypotheses for this demand pool part of what they're telling. Because it's in a way discriminating against the demand pool hypothesis because the testable hypotheses that are presenting are weak or problematic from my point of view. Right. So if I can summarize maybe, so the way they approach the topic is they set these hypotheses

sort of opposite to each other. So on the one hand, you have the demand pull hypothesis, which is kind of, let's call it the innocuous story whereby there's demand for tether and that causes the issuance of tether. And then you have the supply push hypothesis, which is the, let's call it the nefarious story, which sort of would suggest that there's you know, some funny business going on. And what you're saying is the way they specify the demand poll hypothesis doesn't really do it justice. And so it's not a surprise that they find, that they don't find evidence for the demand pull hypothesis in the data, thus kind of tipping the scales in favor of supply push. Is that it? Yeah, exactly. Exactly. You put it nicely, way better than I did.

Yeah, that's exactly what I was trying to say. Yeah, so that's quite interesting. I mean, but you didn't find anything like, you know, any glaring like statistical mistakes in the paper. It's just that you find that the methodology is maybe not fair. Yeah, well, it's, you know, unless you have the data and you rerun the analysis, it's quite, quite difficult to say that there is some huge, huge issue with that. I think that the biggest problem really is that these two sides of the story are not given the equal treatment. And that's the biggest trouble. Because, you know, in reality, both sides can be correct in a way, right?

There can be some interaction. Both things can be part of the story. Why not? Even if, you know, if you find it, if you give it proper treatment, if you're being, you're being fair, it can be the outcome. I mean, you know, the markets are not the same all the time. Your 2017 was really special, let's say, or, you know, parts of it were. So it might be the case that, you know, these two things were happening at once.

The tricky part, of course, also is that there can be some endogeneity issues and some other things that might be worth deeper examination there. But I'm not saying that it's either demand pool or supply push. It can be both at once. But you know, you really need to treat them the same way. Or, you know, the starting point for both sides of the story should be the same and not, as you said, tipped towards one of them. And I have this feeling that, you know, they are not really given the fair trial there. So based on your study, I mean, do you feel that Tether influences the price of Bitcoin?

Or, I mean, to kind of summarize everything, does your study kind of suggest that there's any unbacked issuance of Tether, which is kind of buoying the price of Bitcoin? There is one part of the results. I have there that, let's say, partly go in hand with what Griffin and Chie. are saying. And that's that when there are some corrections in Bitcoin price or when there were corrections in Bitcoin price in 2017, that there were, I mean, negative corrections, then there was an inflow of tethers into the market that kept the bull run going. But the question is, so that's that showed in the in the charts with this negative dip at the very beginning of these impulse response or response functions but the effect is way way weaker than than the effect

coming from bitcoin to the stable coins but the thing is that this is a little bit tricky right because you can interpret it as tether being issued to keep the bull run going but you can also interpret it as that people were trying to buy the dip right so so people saw the correction so they said okay so it corrected 20, 30%, so let's buy more for cheaper because the bull run is going. So it's not really clear which way you want to, you interpret it. You can interpret it both ways. And again, you know, if you're leaning towards one, it is easier to say, okay, it's like that. But again, it should be given, you know, proper treatment, see it both ways.

Because, you know, even now you can see all those, you know, buy the dip and blah, blah, blah, these things that we all know about. But if you have this empirically, you cannot really say which part of the story it is, unless of course you really see what is going on inside Tether or other stable coins. You are, you know, we are all just trying to get as much information as we can from the data we see or data we have.

Yeah. So what would be, you know, the kind of headline takeaway that you would, you would invite practitioners to take from your study? Well, I would say that stable coins reflect the demand. That would be the very short version. The longer, of course, would be that, you know, it would be way longer. Of course, that's for people to read the conclusion maybe

or the discussion of the paper because it's never that simple. But the main point of my study certainly is that it seems way more likely that the issuances of stable coins are more the reflection of an increasing demand into investing into crypto assets. And we don't really or I don't really find evidence of this supply push or of this boosting mechanism that will be going on. Because there is a specific type of dynamics or of the shape of these impulse response functions that I would expect if there is this kind of dynamics. Because both parts of the story can be true that there is some kind of a push and also a pool. But you would see some kind of a spiraling effect. That's what I actually found way back in 2013 with this Google Trends slash Bitcoin paper where there was some sort of. like self-boasting mechanism that you know the prices were increasing the people were

were more looking into it buying more so the price was increasing so there were more people there were more people interested etc etc until it collapsed and and then you know there was this this huge huge correction so that's that's something we might expect there that's the thing that I saw or I had I presented in this paper in 2013 was where there was this self-boosting mechanism, but there's nothing like that in the results there. I find not even a hint of that. So I'm quite, it seems very unlikely.

I don't want to say it's 100%, it's statistics or its econometrics, it's research, it's science, it's never 100%. It's a hypothesis that you test, you have some level of confidence, but I'm quite confident or very confident based on these results that the tether are not being printed just to boost the prices. They really seem to be the reflection of the

increased interest into investing. But in the paper, you don't really take a stance on, and it's not even necessarily testable, what the quality of the backing is of those tethers, whether they're fully backed or under-reserved or unbacked. You're not even necessarily taking a view on that particular side of the debate. Well, I certainly mention it and I talk about it there because I think it's it's of course very important thing for for this kind of discussion but I don't have I don't have this information right no well we we don't have it in general so until we have some some audit we will never we will never know but I have or I present some expectations what I have about the dynamics I would see if it's not backed if it is backed and so I have this kind of

a discussion. So in the end, I don't, or I find the dynamics that I would expect for, for no shady business, let's say. All right. So we've covered your paper. We talked about Griffin and Shams. Are there any other papers on stable coins that you particularly like and you think are elegantly done and sort of fair to the subject matter? That's quite hard question, I would say, or quite difficult question to answer, because there are really not many papers on stable coins. I did some standard literature review on it when I was writing the paper, because I actually, at the very beginning, I really wanted just to write a very short paper, so letter, kind of a thing. But then I got into it and it got really interesting, and I wrote this standard. length paper with a with a story behind but most of the papers on stable coins are

either like legal or or more like background stories and there are not many empirical ones or certainly not many empirical ones I would I would suggest much some of the ones I would suggest I have I have in the I have in the paper there so certainly the paper that you talk about before by by Lions and Wiswana, not rush, that's certainly nice paper. There is a short paper by way from 2018 that I talk about that they actually don't find this supply push either, even though that's not, it's, you know, it's not that popular of a paper. In general, at this point in the literature, it seems that, um,

Stable coins are not yet the center of interest. I would say these papers are not cited a lot. We are still in the phase when the papers there are closer to standard financial econometrics are more popular. So like portfolio diversification, some trading strategies and these things are still more popular. But there are newer papers about central bank digital currency. so these are these CBDCs and and even even and we are presenting or are publishing some papers so that so I think the train is starting in a way but but still there are not many papers on stable coins that was one of the motivations actually because as I said the the idea and the methodology I have in the paper is nothing is it's not a rocket science it's a it's a very it's a very simple idea relatively simple methodology your standard methodology that you would use in financial econometrics.

But no one wrote about it, which was or has written about it, which I found quite surprising at the beginning. And that's why I did, because I found the topic interesting and worth examining. And the motivation for me is as always. So if there is some opinion, some popular opinion, that seems to be clear cut. So, for example, at the very beginning in 2013, Bitcoin is just about speculation. So let's test it. Or there are fundamentals. Okay, let's get the data.

Let's test it. Same here. Tether is used just for boosting the price. There is nothing behind. Okay, let's get the data and, you know, run the analysis and see what the data tells us. So that's what I did there. And that's what I always try to do. Yeah, well, I'm glad you wrote it and you took such a kind of a fair and balanced approach.

I think this is a real contribution. Hopefully we can get some more eyes on the paper. In terms of following your future work, where would you recommend that people go to follow you and follow your work? Well, I have several co-authors. We have various projects on crypto assets. I got a year ago I got a I got a project from the from the Czech Science Foundation about crypto assets which was also quite quite risky avenue to try to apply for a grant solely on crypto assets I got it so we are working on that so we there we are more focusing on

mining so the environmental effects or possible environmental effects some comparison between proof of work, proof of stake, and, you know, what implications it has and these kinds of things. In general, crypto assets are just, you know, fascinating in a way that they, or for economists, certainly are, from the perspective of that they allow you to study so many things that you normally wouldn't be able to. because there are many, you know, theories that assume something or that expect something about the market, but you will not be able to find it in standard financial markets. You either don't find a behavior or you don't have data for it. But then you have crypto assets and there is this huge interaction between fundamentalists and chartists.

You know, you have loads of data, various types of data on high frequency. so you can do so many things there. You just need to think about it and really, really try to test their hypotheses. So it's a fascinating field from this perspective. There are so many things that can be done. Many hypotheses that can be tested that you can't test or use for standard finance markets because they just don't have either the data or they are too regulated or to standard. Let's put it like that.

But even for example, the issue of liquidity. I mean, for standard markets, most assets that you trade with, they are, you know, they are just very liquid. So you cannot, you cannot test, test many things or examine many things about liquidity. But then you have crypto assets. You have these, these super white or super empty order books for smaller tokens or or cryptocurrencies. you can you can study that you know you can study market efficiency which normally you have this assumption that markets are liquid and then they are efficient but then you have crypto assets again they are not liquid so even if you can find some trading strategy you can try it but

you know you just can't buy or if you sell you just or if you sell some decent amount of money or even just even like 10,000 dollars for some tokens you just drop the price by by 60% because you just sell through through the whole order boot and stuff like that are so many so many things that you can do and you know in our most most or the closest future now we are really focusing on the on the mining or on the environmental effects I also have a follow-up paper for for stable coins that's that I will write in in coming weeks which which deals with similar stuff like this paper, but from a little bit different perspective,

we have some agent-based models that we want to try. So there are really, really many things. We try to do various, various stuff. Well, I really look forward to seeing your future work on this topic. Ladislav, thanks so much for joining us today. It's really been great. Thank you very much for having me again.