A stablecoin that’s actually stable: A portfolio optimization approach

Klaus Grobys; Juha-Pekka Junttila; James W. Kolari

doi:10.1016/j.jfs.2025.101458

A stablecoin that’s actually stable: A portfolio optimization approach

Klaus Grobys^1,2; Juha-Pekka Junttila^3,4; James W. Kolari⁵

¹ Christian-Albrechts-Universität zu Kiel · ² University of Vaasa · ³ Oulu University of Applied Sciences · ⁴ University of Oulu · ⁵ Texas A&M University

Journal of Financial Stability 2025 open access

Stablecoins seek to address the high price fluctuations of unbacked cryptocurrencies, such as Bitcoin and Ether. However, recent studies as well as the collapse of stablecoin USTC (Terra) cast doubt on the stability of stablecoins. Using well-known Markowitz portfolio optimization methods, we combine five leading stablecoins into a global minimum variance portfolio that represents a stable aggregate stablecoin (SAS). We find that SAS is much more stable than its constituent stablecoins. Also, in a stress test adding USTC to the portfolio, SAS remains stable with a narrow price range over time. Importantly, the construction of SAS using modern diversification methods has practical implications for the ongoing development of central bank digital currencies (CBDCs).

DOI: 10.1016/j.jfs.2025.101458
Volume: 81
Pages: 101458
Language: en
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