Stablecoin Selloffs Can Accelerate After a Critical Shock Threshold: Study
Stablecoins may remain stable through ordinary bouts of bad news, but a severe shock can quickly turn into a much deeper selloff, according to research from Renmin University of China.
Researchers used large language model agents to study how stablecoins respond when negative information hits the market. Their tests found that selling can remain manageable at first, then accelerate once it reaches a certain level.
Small price gaps can attract arbitrage traders, who buy the stablecoin and help push it back toward $1. A larger shock can drain available liquidity and keep investors selling, making that process less effective.
Fear Can Amplify Stablecoin Depegging
The researchers found that fear, thin liquidity and heavy retail selling can reinforce one another. As more orders pile up on one side of the market, arbitrage traders may become less willing to step in.
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