Breaking the stablecoin buck: The attenuating impact of security breach shocks at cryptocurrency exchanges

Cryptocurrency markets rely on stablecoins maintaining their peg to fiat currencies like the US dollar. Customers trade between these stablecoins and their counterparts on exchanges that operate like banks without consumer protections to mitigate run risk. We investigate whether exchange breaches break the peg of Tether, the leading stablecoin. Using an event study, we find that shocks are associated with a break in Tether's peg but return quickly to its par value. By contrast, we find no effect on the price of Bitcoin. We also observe diminishing effects over time, consistent with a maturing market and the adaptive market hypothesis.