美联储-完全安全的数字货币的脆弱性 The Fragility of Perfectly Safe Digital Money

FinanceandEconomicsDiscussionSeries

FederalReserveBoard,Washington,D.C.

ISSN1936-2854(Print)

ISSN2767-3898(Online)

TheFragilityofPerfectlySafeDigitalMoney

ElizabethC.Klee,AraziLubis,ChaseP.Ross,SharonY.Ross,and

AlexandrosP.Vardoulakis

2026-037

Pleasecitethispaperas:

Klee,ElizabethC.,AraziLubis,ChaseP.Ross,SharonY.Ross,andAlexandrosP.Var-doulakis(2026).“TheFragilityofPerfectlySafeDigitalMoney,”FinanceandEconomicsDiscussionSeries2026-037.Washington:BoardofGovernorsoftheFederalReserveSystem,

/10.17016/FEDS.2026.037

.

NOTE:Sta优workingpapersintheFinanceandEconomicsDiscussionSeries(FEDS)arepreliminarymaterialscirculatedtostimulatediscussionandcriticalcomment.Theanalysisandconclusionssetfortharethoseoftheauthorsanddonotindicateconcurrencebyothermembersoftheresearchsta优ortheBoardofGovernors.ReferencesinpublicationstotheFinanceandEconomicsDiscussionSeries(otherthanacknowledgement)shouldbeclearedwiththeauthor(s)toprotectthetentativecharacterofthesepapers.

1

TheFragilityofPerfectlySafeDigitalMoney

*

ElizabethC.Klee†1,AraziLubis‡1,

ChaseP.Ross

§

1,SharonY.Ross¶1,andAlexandrosP.Vardoulakis聂1

1FederalReserveBoard

June2,2026

Abstract

Digitalmoneydiffersfrompreviousformsofmoneyinanimportantway:itunbundlestrust.Insteadofrelyingonatrustworthyinstitutiontosettlepayments,itreliesondecentralizedverification,whosecostispricedseparatelythroughcongestion-sensitivegasfees.Thisarrangementcreatesanovelfragilityfromtheinteractionoftwoopposingforces:networkexternalities,whichmakedigitalmoneymorevaluableasadoptionrises,andcongestionfees,whichmakeitmorecostlytouse.Weshowthattheseforcesgeneratestrategiccomplementaritiesinredemptiondecisionsandcancreaterunsevenwhendigitalmoneyisbackedbyperfectlysafereserves.

JELCodes:C72,E42,E44,G01,G23

Keywords:Stablecoins,DigitalAssets,Payments,Runs,FinancialStability,GlobalGames

*Forcommentsandsuggestions,wethankMarcusOpp(theeditor),ToniAhnert(discussant),DirkNiepelt,JamesChapman,andparticipantsatEconomicsofPaymentsXIconferenceandTheFutureofPaymentsconference.TheviewsexpressedinthispaperarethoseoftheauthorsanddonotnecessarilyrepresentthoseoftheFederalReserveBoard,oranyoneintheFederalReserveSystem.

†

elizabeth.c.klee@

‡

arazi.lubis@

§

chase.p.ross@

町

sharon.y.ross@

|

alexandros.vardoulakis@

2

1Introduction

Digitalmoneydiffersfrompreviousformsofmoneyinanimportantway:itunbundlestrust.Moneytraditionallyreliesonatrustworthyinstitution,suchasasovereignorbank,forpaymentsettlement.Trustinthemoneyisbundledwithtrustintheinstitution.Digitalmoneystripstrustoutandpricesitseparately,onetransactionatatime.Onapermissionlessblockchain,thecostoftrustisthecostofdecentralizedverification,paidingasfees,whichincentivizevalidatorstoprocesseachtransaction.Thatcostdependsondemandforblockspaceacrosstheentirenetwork.Highernetworkcongestionmakesitmoreexpensivetousedigitalmoneyforpayments.Thearrangementstandsinstarkcontrasttothetraditionalpaymentsystem,wheresettlementpricesaresetbypolicyanddonotfluctuatewithreal-timedemand.Weshowthattheunbundlingoftrustintroducesanovelfragility—onethatremainsevenwhenreservesaresafeandliquid.

Thefragilityofdigitalmoneyarisesfromtheinteractionoftwoopposingforcesinherenttopermissionlessblockchains:networkexternalitiesandblockchaincongestion.Digitalmoneyismoreusefulforpaymentswhenmanyagentsuseit,aclassicnetworkeffect.Buttheadoptionthatstrengthensnetworkexternalitiesalsobringsheavierblockchainuse,whichdrivesupcongestion.Highcongestionandlownetworkexternalitiescombinetoproducestrategiccomplementaritiesinredemptiondecisions:whetheranindividualusershouldredeemdependsonwhetherotherusersalsoredeem.Eachredemptionerodesthenetworkexternalitiesforthosewhoremain,promptingfurtherredemptions.Theinteractioncangenerateadiscretejumpinredemptionsratherthanasmooth,continuousresponsetohighercongestion—andthisregime-switchingpredictioniswhatwetaketothedata.

WeformalizethemechanisminaglobalgamesmodelandempiricallytestitusingEthereum-basedstablecoins.Themodeldeliversauniqueredemptionthresholdasafunctionofcongestion,whichfallsasnetworkexternalitiesweaken.Belowthethreshold,redemptionsremainlimited;aboveit,redemptionsjump.Themechanismgeneratestwoempiricalpredictions.First,congestionshoulddriveredemptionsonlywhennetworkexternalitiesarelow.Second,thecongestion-redemptionrelationshipshouldbeconcentratedinthehigh-congestionregime,notspreadsmoothlyacrossthecongestiondistribution.Wetestbothpredictions.

Ourcontributionistheidentification—boththeoreticallyandempirically—ofasource

3

offragilityindigitalmoneythatisdistinctfromthecreditandliquidityriskthatdrivesinstabilityintheexistingliterature.Alargebodyofworkstudiesstablecoinrunsthatarisewhenreserveassetsareriskyorilliquid,followingthebankingtraditionof

Diamondand

Dybvig

(

1983

);see,forexample,

Ahmed,Aldasoro,andDuley

(

2023

),

Bertsch

(

2023

),

Gorton,

Klee,Ross,Ross,andVardoulakis

(

2025

),and

Ma,Zeng,andZhang

(

2025

).

Bolt,Frost,

Shin,andWierts

(

2024

)studystablecoininstabilityinaglobalgamesmodelwithnetworkexternalities,butthesourceoffragilityintheirpaperisstillasset-siderisk.

Sockinand

Xiong

(

2023

)showthatnetworkexternalitiesincryptocurrencyplatformscreatestrategiccomplementaritiesbetweenuserparticipationandspeculatorsentiment.Weshowthatinstabilitycanariseevenwhenreserveassetsareperfectlysafeandliquid,drivenentirelybytheinteractionofnetworkexternalitiesandthecongestioncostsinherenttodecentralizedsettlement.

Ourempiricalapproachismotivatedby

Goldstein,Jiang,andNg

(

2017

),whoestablishstrategiccomplementaritiesintheredemptionsofbondmutualfunds.Intheirsetting,investorsredeemmoreaggressivelyfromfundswithlowliquidityafterpoorperformancebecausetheyanticipateotherinvestorswillredeemfirst,imposingliquidationcostsonremainingholders.Inoursetting,congestionplaystheroleofbadperformance,andnetworkexternalitiesplaytheroleofliquidity.Whennetworkexternalitiesarehigh,thestablecoinislikealiquidfund:individualredemptionsdonoterodethepaymentnetworkenoughtotriggerfurtherexits.Whennetworkexternalitiesarelow,thestablecoinislikeanilliquidfund:eachredemptionerodesthepaymentnetworkthatmakesthestablecoinvaluable,amplifyingtheincentiveforotherstoredeem.

Weshowthatstablecoinswithlownetworkexternalitiesexperiencedisproportionatelyhigherredemptionswhencongestionrises.Thispatternisconsistentwithstrategiccomple-mentarities.Theeffectofcongestionaloneisnotstatisticallysignificant:highergasfeesdonotgenerateredemptionsforstablecoinswithnormalorhighnetworkexternalities.Redemptionsariseonlyfromtheinteractionofthetwoforces.Wecandistinguishourmechanismfromthealternativeofsmooth,pre-emptiveredemptions.Whenwedecomposetheinteractionacrossthecongestiondistribution,theentireeffectisconcentratedinthehigh-congestionregime.Nosmoothrelationshipexistsbetweencongestionandredemptionsatlowerlevels.Thisthreshold-likepatternisthehallmarkofstrategiccomplementarities.

Anaturalconcernisthatthepriceofcongestion,thegasfee,isendogenous.Weaddress

4

thisbyexploitingplausiblyexogenousvariationinEthereumblockspacesupply:emptyslotscausedbyrandomvalidatorfailuresreducethesupplyofblockspaceforreasonsunrelatedtostablecoindemand.Wealsoshowthatsupply-drivencongestionshocksshiftstablecoincirculationawayfromEthereumtowardcompetingblockchainsforstablecoinswithlownetworkexternalities,andthattheeffectisagainconcentratedintheuppertailoftheshockdistribution.Wecomplementthisanalysiswithdirecttransaction-levelevidence,showingthathigherEthereumgasfeesincreasenettransfersofUSDTfromEthereumtoTron.Stablecoinholdersrespondtocongestionnotbyabandoningthestablecoinbutbymigratingtoablockchainwithlowercongestioncosts,consistentwithfragilitystemmingfromtherailratherthantheliability.

Togaugetheeconomicmagnitudeofdecentralizedtrust,wecomparethecostofsettlementonEthereumwiththecounterfactualcostofroutingthesametransactionsthroughthetraditionalpaymentsystem,theFederalReserve’sFedwiresystem.GasfeescanexceedthecostofequivalentFedwiresettlementbyanorderofmagnitude,andtheyarefarmorevolatile.Thiscomparisonillustrateswhythecongestionchannelweidentifyhasmaterialconsequencesforthestabilityofdigitalmoney.

Ourresultspointtoadistinctionthatdiscussionshavelargelyoverlooked:thedifferencebetweentheliabilityandtherail.Focushasbeenalmostexclusivelyontheliability—thequalityofissuers’reserveassets,whetherissuerscanhonorredemptionsatpar,andhowstablecoinscomparetodepositsandmoneymarketfunds.Weshowthatevenwhentheliabilityisperfectlysafe,therailonwhichthemoneycirculatescanbeasourceoffragility.Thisdistinctionmattersbeyondstablecoins.Ourmechanismappliestoanydigitalmoneythatcirculatesonapermissionlessblockchainwithcongestion-sensitivefees:stablecoins,tokenizeddeposits,tokenizedTreasuries,oracentralbankdigitalcurrency.AstablecoinfullybackedbyTreasurieswouldstillbeexposedtothecongestion-drivenfragilityifitsettlesonapermissionlessblockchainwithvolatilegasfees,aswouldatokenizedinsureddepositorevenacentralbankdigitalcurrencyissuedonEthereum.

1

Designsthatdecoupletransactioncostsfromnetwork-widecongestion—suchastrustedLayer2solutionsordedicatedapplication-specificchains—couldmitigatethefragility,buttheymaycomewiththeirownimpediments

1AccordingtotheFinancialTimes,theEuropeanCentralBankisexploringrunningadigitaleuroonapublicblockchainlikeEthereumratherthanaprivateone.

/content/8ad60169-d1e5-4d2c-

b928-d53d668f0ec6

.

5

whicharebeyondthescopeofourpaper.

Thesequestionsmatternowmorethanever.Stablecoinshaveexistedforoveradecadeandappeartobealastingfeatureofthedigitalfinanciallandscape.Awaveofregulatorychangesaroundtheworldsuggeststhattheboundarybetweentraditionalfinanceanddigitalfinanceisnarrowing.Suchdevelopmentspointtowardanewregime,oneinwhichdigitalmoneyanditsfragilitiesplayamorecentralrole.

RelatedLiterature.Ourpaperrelatestoseveralstrandsoftheliterature.Firstandforemost,wecontributetotheliteraturestudyingrunriskonstablecoins.Becausestablecoinspromiseredemptionatparandondemand,acentralconcernhasbeentheirabilitytomaintainthepegtofiatcurrency.Thisconcernhasledtoafocusonthereserveassetsofstablecoinissuersandredemptionfrictions,followingthebankingtraditionstartingwith

Diamondand

Dybvig

(

1983

).Fragilityariseswhenreserveassetsareriskyorilliquid,weakeningconfidenceintheabilityofthestablecointomaintainitspeginstressperiods.See,forexample,

Ahmed

etal.

(

2023

),

Bertsch

(

2023

),

Gortonetal.

(

2025

),and

Maetal.

(

2025

).

Allthesepapersbuildonglobalgamestechniques(

CarlssonandvanDamme1993

;

Morris

andShin2003

)topindownauniqueequilibrium,whichisimportantfortyingself-fulfillingbeliefstofundamentalsandmakingthemodelsusefulforcomparativestaticsandpolicyanalysis.However,wedepartfromstandardbank-runglobal-gamemodelswhereinstabilityisdrivenbycreditandliquidityriskontheassetthatfinancialinstitutionswithrunnableliabilitieshold(

GoldsteinandPauzner2005

;

Kashyap,Tsomocos,andVardoulakis2024

).

2

Inourmodel,perfectlysafeandliquidassetsbackthestablecoins,andcreditandliquidityriskdonotdriveinstability.Instead,instabilitycanarisefromtheuncertaintyaboutthelevelofon-chaintransactions,whichislinkedtouncertaintyregardingblockchainnetwork

2Seealso

Ahnert,Anand,Chapman,andGai

(

2019

),

InfanteandVardoulakis

(

2020

),

Carletti,Leonello,and

Marquez

(

2023

),

MattaandPerotti

(

2023

),and

Schilling

(

2023

)forrecentglobalgamebank-runmodelsthatstudyfragilityaccruingfromtheriskinessandilliquidityofafinancialinstitution’sassets.

Anadu,

Azar,Cipriani,Huang,Landoni,Spada,Macchiavelli,Malfroy-Camine,andWang

(

2024

)comparerunsonstablecoinswithilliquidassetstorunsonprimemoneymarketfunds.

Ahnert,Hoffman,Leonello,and

Porcellachia

(

2024

)and

Carapella,Chang,Infante,Leistra,Lubis,andVardoulakis

(

2025

)forglobalgamemodelstostudythefinancialstabilityrisksfromcentralbankdigitalcurrencies.

Fernández-Villaverde,

Sanches,Schilling,andUhlig

(

2021

)showthataCBDCcantransformthecentralbankintoadepositmonopolistthatcrowdsoutprivatefinancialintermediation,while

Schilling,Fernández-Villaverde,andUhlig

(

2024

)identifyatrilemmawherebycentralbanksofferingCBDCscannotsimultaneouslyachieveallocativeefficiency,financialstability,andpricestability.

6

congestion,andcruciallyinteractswithnetworkexternalitiesinstablecoinusage.Moreover,

contrarytotheaforementionedpapersonstablecoinruns,weempiricallytestourmechanism.Ourstrategyfollows

Goldsteinetal.

(

2017

),whoidentifystrategiccomplementaritiesinbondmutualfundredemptions;weadapttheirapproachtothestablecoinsetting,replacingfundperformancewithcongestionandfundliquiditywithnetworkexternalities.

Boltetal.

(

2024

)alsostudystablecoininstabilityinagenericglobalgamesmodelwheretheuseofstablecoinsforpaymentgeneratesnetworkexternalities.Inparticular,eachagent’spayofffromholdingbankmoneyincreaseswiththeaggregateadoptionofbankmoney,creatingstrategiccomplementarities.Thisfeatureisalsopresentinourwork.However,thesourceofinstabilityintheirpaperisriskfromtheassetholdingofstablecoins,similartotheaforementionedliterature.Inparticular,whattriggerstherunisasufficientlynegativerealizationoffundamentalsthatamplifiesassetilliquidityandaninabilitytocrediblyissuemoneywithnegativeequity.Wedifferinthisaspectasinourmodelstablecoinsholdperfectlysafeandliquidassets,andarealwayssolvent.Tothebestofourknowledge,oursisthefirstpapertoshowstablecoininstabilitycanarisefromtheinteractionbetweennetworkexternalitiesandnetworkcongestionabstractingfromtherisksofstablecoins’reserves.

Second,wecontributetotheliteraturestudyingnetworkexternalitiesintheuseofmoney.Inthecontractdenominationandinternationalmacroliterature(

DoepkeandSchneider2017

;

GopinathandStein2020

;

ChahrourandValchev2021

),theseexternalitiesreflectincentivestoalignassets,liabilities,andtransactionsinacommoncurrency.

Coppola,Krishnamurthy,

andXu

(

2026

)applythislogictofinancialmarkets,showingthatgreaterusedeepensassetmarketliquidity,improvesmatchinginmoneymarkets,andlowerssettlementcoststhroughreducedsearchfrictions,generatingincreasingreturnsandpersistentdominance.Theyuseasearch-basedmodelwithendogenousmarketdepthandincreasingreturnstoscaletogeneratenetworkeffectsgivingrisetoadominantcurrencyfordebtdenomination.Bycontrast,

Arseneau,Rappoport,andVardoulakis

(

2020

)show,inasimilarframework,thatsuchnetworkeffectsdonotobtainunderaconstantreturnstoscalematchingtechnology.

Sockin

andXiong

(

2023

)showthatnetworkexternalitiesincryptocurrencyplatformscreatestrategiccomplementaritiesbetweenuserparticipationandspeculatorsentiment,whichcantriggerplatformbreakdownwhenuseroptimismfallssufficientlylow.

Boissay,Cornelli,Doerr,and

Frost

(

2022

)discusshowthelimitstoblockchainscalabilityresultinfragmentation,preventingnetworkeffectsfromtakingplace.Morerelatedtostablecoins,

Gorton,Ross,andRoss

(

2026

)

7

studyhowstablecoinsdevelopconvenienceyieldsandidentifytechnology,reputation,and

dollardemandaskeyforces.Ourpaperabstractsfromtheexactmicrofoundationsofnetworkexternalitiesintheuseofmoneyasamediumofexchangeorthesourceofconvenienceyieldsforstablecoins.

3

Third,werelatetotheliteratureonfinancialmarketinstabilitywithendogenousliquidityandcongestion,wheretradingfrictionsandintermediarybalancesheetconstraintsmakemarketdepthstate-dependentandcangiverisetorunsandfire-saledynamics.

Bernardo

andWelch

(

2004

)showhowtheanticipationofworseningliquiditycangeneratepre-emptiveselling:investorschoosetoliquidateearlytoavoidsellingintoacongestedmarketwithlowerprices.Intheirframework,however,pricesadjustcontinuouslywithaggregatesales,sothatincentivestosellaresmoothedandtheequilibriumfeaturesgradualliquidationandisunique.Ourmodelsharesthecongestionchannel,arisinginourcasefromnetworkcongestionandthecostsofdecentralizedtrust(

Budish2025

),butaugmentsitwithnetworkexternalitiesinadoption.Thisintroducesstrategiccomplementaritiesinagents’sellingdecisions,givingrisetomultipleequilibria,whichweaddressusingglobalgametechniques.

Eisenbachand

Phelan

(

2026

)showthatsufficientlystrongbalancesheetcostsofintermediariescanalsogeneratestrategiccomplementaritiesandequilibriummultiplicity.Ourmechanismdiffersinthatmultiplicityarisesfromtheinteractionbetweencongestionandnetworkexternalities,ratherthanfromspecificassumptionsonintermediarybalancesheetcosts.

2InstitutionalBackground

Thissectiondescribestheinstitutionalfeaturesofstablecoinsthatarecentraltoouranalysis:howstablecointransactionsaresettled,whysettlementcostsdifferfromtraditionalpaymentsystems,andhownetworkexternalitiesandcongestioninteractonpermissionlessblockchains.

3Theliteraturehasalsostudiedthepresenceofstrategiccomplementaritiesininvestmentdecisionsandtechnologyadoption(see,forexample,

CooperandJohn

(

1988

)and

AngeletosandPavan

(

2004

)),i.e.,individualagentsaremorelikelytoinvestinatechnologyifothersdo.Theconceptsarerelated,thoughourworkfocusesonexternalitiesfromtheuseofprivatemoniesinpaymentsandtheirinteractionwithnetworkcongestion.

8

2.1StablecoinsandDigitalMoney

Stablecoinshaveemergedasthedominantstoreofvalueandmediumofexchangeinthedigitalassetecosystem.Theirdefiningfeatureistheirpegtofiatcurrency,typicallytheU.S.dollar,whichinsulatesusersfromthevolatilityofunbackedcryptocurrenciessuchasBitcoin.Thestablecoinmarkethasgrowntoover$300billioninmarketcapitalizationasofApril2026,withTether(USDT)andUSDCaccountingforthevastmajority.

Bothbankdepositsandstablecoinscanbeusedtomakepayments,butthetwosettledifferently.Whenadepositorpayssomeoneatanotherbank,thebanksexchangecentralbankreserves.Settlementisincentralbankmoneyandisfinal,andthecostofsettlementisstableandpredictable.Stablecointransactions,bycontrast,aresettleddirectlyonablockchain,withoutanycentralbankmoneychanginghands.

4

Decentralizedthirdpartiesverifyeachtransaction,andthecostofdoingsodependsonnetwork-widedemandforblockspace.Thiscontrastbetweeninstitutionalanddecentralizedsettlementisthesourceofthecongestiondynamicsatthecenterofouranalysis.

2.2InstitutionalTrustandDecentralizedTrust

Inthetraditionalpaymentsystem,thecentralbank’strustworthinessandreputationmakesettlementfinal.Thecostofsettlingatransactionwithcentralbankmoneyisrelatedtothefixedandmarginalcostsofoperatingthepaymentsystem,andthesecostscanbesignificant.EstimatesofthecostofpaymentsystemscanclimbtonearlyonepercentofGDP(

Hayashi

andKeeton2012

).Yet,depositorstodaygivelittlethoughttotheexactmechanismforclearingandsettlement,enjoyinglow-frictiontransfersatstable,predictablepricesthatarelargelydecoupledfromthevolumeoftransactionsonthenetwork.Thisinstitutionaltrustintheinstitutionsthatintermediatethepaymentssystemisabsentinpermissionlessblockchain

5

systems.

Stablecoinsrelyinsteadondecentralizedtrustembeddedinblockchainprotocols.Inapermissionlessblockchain,decentralizedthirdparties(validatorsorminers)verifytransactionsandrequirecompensationtodoso.Validatorsmaintaintheintegrityoftheblockchainbyregisteringpaymentsinadistributedledgerusingcryptographictechniques,asystemwe

4Stablecoinsarebearerinstruments:thetokenitselfissufficientforfinalsettlementoncetransferredon-chain.

5Therearealsopermissionedblockchainscontrolledbythedevelopersoracentralparty,suchasOnyxbyJPMChase,whicharenotthefocusofourpaper.

9

refertoasdecentralizedtrust.

6

Thecostofverifyingablockchaintransactiondependsonthecomputationalcomplexityofthetransaction,thevolumeoftransactionscompetingforblockspace,andthecapacityofvalidatorstoprocessthem(

Budish2025

).Thegasfeepaidforasingletransactionistheproductofthegasused,ameasureoftheresourcesrequiredtoexecutethetransaction,andthegasprice,theper-unitcostofthatworkdenominatedinETH.Thegaspricemoveswithaggregatedemandforblockspaceandisdeterminedbynetworkcongestionandprotocolrules,whilethegasusedisfixedbythenatureofthetransactionitself:astandardUSDCtransferconsumesroughly65,000unitsofgas,whereasadecentralizedexchangeswaporanewcontractdeploymentcanconsumeseveraltimesthatamount.

7

Unlikethetraditionalpaymentsystem,thecostofusingdigitalmoneyforapaymentisnotsetbyaninstitutionbutdeterminedendogenouslybycongestiononthenetwork.

Gasfeesarevolatilebothovertimeandacrosstransactionsatagivenpointintime.

Figure

1

illustratesbothdimensions.Thetop-leftpanelplotsthedailyaveragegasfeeinU.S.dollars;feesspikedsharplyduringthe2021–2022cryptoboomandhavetrendeddownsince,thoughperiodicspikesremain.Evenwithinasingleday,however,differentuserscanfaceverydifferentfeesbecausegasusedvariesbytransactiontype.Thedailyaverageinthetop-leftpanelthereforereflectsbothtime-seriesvariationinthegaspriceandcross-sectionalvariationinthecomplexityoftransactionssettlingthatday.

Theremainingpanelsdocumentaseconddimensionofheterogeneity:gasfeesareregressivewithrespecttotransactionsize.Becausegasfeesdonotscaleindividualtransactionvalue,thefee-to-valueratiomechanicallyfallsasthesizeofthetransferrises.SplittingUSDCtransfersatthedailymediantransactionsizemakesthisclear.Forbelow-mediantransfers(bottom-left),the75thpercentileofthefee-to-valueratiofrequentlyexceeds100percent—thefeepaidtosettlethetransactionislargerthantheamountbeingtransferred.Forabove-mediantransfers(bottom-right),thesameratioalmostneverexceeds5percent.Thesettlementinfrastructurethusaccommodateslarge-valuetransfersatmodestcostbutimposesprohibitive

6Decentralizedtrustmaybeanabuseofterminology,butitcontrastswithinstitution-basedtrust.Strictlyspeaking,Bitcoin’screator,SatoshiNakamoto,originallydescribedtheneedfor“anelectronicpaymentsystembasedoncryptographicproofinsteadoftrust.”Werefertothetrustaccruingfromcryptographicproofasdecentralizedtrustandthetrustintheinstitutionsintermediatingpaymentsasinstitutionaltrust.Decentralizedtrust,asopposedtotrustinanintermediary,canendogenouslyariseundercertainconditions.

7Althoughwerefertotheseverificationfeesasgasfeesthroughoutthepaper,inpracticethisterminologynarrowlyreferstocertainblockchains,includingEthereum.

10

relativecostsonthesmall,high-frequencypaymentsthatamediumofexchangeneedsto

support.

Thevolatilityofgasfeesstemsfromnetworkcongestiondrivenbyalltransactionssubmittedforsettlementontheblockchain,notjuststablecointransactions.Figure

2

plotsgasfeesagainstthenumberoftransactionsonEthereum,showinganincreasingandconvexrelationship.Becausestablecoinssettleonpermissionlessblockchains,theysharetheunderlyinginfrastructurewithallotherdigital-assettransactions—cryptocurrencyspeculation,NFTminting,decentralizedfinanceprotocols.Asnetworkactivityrises,sodocongestionandfeesforstablecoinuse.Asurgeindemandforblockspacefromcryptocurrencytradingcanraisethecostofaroutinestablecoinpayment,eventhoughthestablecoin’sownfundamentalshavenotchanged.

Table

1

illustratesthequantitativeimportanceofthisdistinction.WecomputethecounterfactualcostofprocessingFedwiretransactionsonEthereum.FedwirefeesaresetbyFederalReservepolicyanddonotfluctuatewithnetworkdemand:abankmakingapayment

8

onabusydayfacesthesamefeeasonaquietday.

OnEthereum,thecostofthesametransactioncanvarybyordersofmagnitudedependingonnetwork-wideactivity.

9

In2021,processingFedwire’sannualvolumeonEthereumwouldhavecostbetween$1.0billionand$7.5billion,against$34millionto$172milliononFedwireitself—theEthereumupperboundfortytimeslarger.Gasfeeshavesincetrendeddown.By2025,Ethereum’slowerboundof$23millionfallsbelowFedwire’s$42million,butEthereumfeesremainfarmorevolat