CBDC uncertainty’s state-dependent role in stablecoin crises: evidence from dual-event analysis

We examine state-dependent CBDC uncertainty during stablecoin crises using a dual-event experiment – TerraUSD’s (USTC) algorithmic collapse (May 2022) and USDC’s fiat-backed de-pegging (March 2023). Employing rolling-window VAR with multi-pronged identification on daily volatility for four stablecoins (2020–2024), we demonstrate three findings. First, stablecoin markets exhibit conditional segmentation in normal periods but become highly connected during crises, with algorithmic failures generating stronger systemic spillovers than fiat-backed distress. Second, algorithmic coins act as hidden contagion sources, exporting rather than absorbing shocks. Third, CBDCUI exhibits state-dependent vulnerability: functioning as systemic shock absorber during algorithmic crises yet minor exporter during fiat-backed distress, with enhanced effectiveness in high-liquidity environments. These findings support differentiated regulatory frameworks, with algorithmic stablecoins warranting stringent oversight while fiat-backed coins require enhanced transparency, and suggest investors should monitor systemic connectedness for regime-shift signals.