Renmin University study warns of accelerated stablecoin selloffs

Research from Renmin University of China indicates that stablecoins can withstand minor negative news but face accelerated selloffs once a critical shock threshold is reached. Using large language model agents to simulate market responses, researchers found that while small price gaps often attract arbitrage traders who stabilize the peg, severe shocks can drain liquidity and discourage arbitrageurs from intervening.

The study highlights that fear, thin liquidity, and heavy retail selling can create a reinforcing cycle that amplifies depegging. The severity of the shock appears to be a more significant factor in market instability than the specific narrative driving the event. This was evidenced by the March 2023 USDC crisis, where reserve concerns and limited redemption access caused the token to fall below $1.

Beyond reserve adequacy, the research suggests that clear disclosures and dependable redemption systems are vital for maintaining stability. This is increasingly critical as stablecoins expand into the payments sector, potentially competing with traditional banks for cross-border transfer revenue.