New research has indicated that the US Federal Reserve’s monetary policy has only a limited effect on stablecoin lending rates, according to a conference at Warwick Business School.

Presenting at Warwick Business School’s Gillmore Centre for Financial Technology Academic Conference on DeFi and Digital Currencies, Andrea Barbon of the University of St. Gallen analysed 2.5 million transactions of US dollar-backed stablecoins on the DeFi platform Aave.

The conference, held at WBS London in The Shard, was attended by representatives from the European Central Bank, the Bank for International Settlements (BIS), Banque de France, and leading fintech academics worldwide.

Researchers highlighted the growing popularity of stablecoins and Donald Trump’s new Genius Act, which regulates cryptocurrency, arguing that central banks should monitor their influence more closely.

Stablecoins currently have a market capitalisation of around US$250 billion, but Professor Barbon said the Fed’s impact on their interest rates remains limited.

“Interest rates for stablecoins are very volatile,”

Professor Barbon explained.

“Despite being pegged to the US dollar, stablecoins operate in a way that largely resists the traditional controls of the Federal Reserve. US monetary policy does influence stablecoin rates, but its effect is minimal, explaining only a limited portion of their variation. The majority of the volatility is driven by factors specific to the crypto ecosystem, particularly demand-driven shocks related to the desire for leverage to invest in other crypto assets like Bitcoin.”

The research also found that stablecoins respond to changes in the Fed’s interest rates only after a delay of several days, sometimes up to a week.

“This is an immature market with rates primarily driven by the volatile demand for leverage within the crypto ecosystem, which is not directly tied to traditional monetary policy,”

Professor Barbon said.

“As stablecoins grow and with the new Genius Act, central banks will need to have more oversight of the stablecoin market and its influence.”

Other research presented at the conference included studies on cryptocurrency price bubbles by Maarten van Oordt of Vrije Universiteit Amsterdam, cross-border flows of Bitcoin, Ethereum, and stablecoins by the BIS, blockchain technology developments from the University of Bonn, Carnegie Mellon University, and George Mason University, as well as work on credit cycles in tokenised real estate markets by Daniel Ruf of the University of Cambridge, and liquid staking on Ethereum by Christine Parlour of Haas School of Business, UC Berkeley.

Ram Gopal, Director of the Gillmore Centre for Financial Technology, said:

“This conference has highlighted the complex and evolving dynamics where traditional finance meets the decentralised world of fintech. The research presented here, particularly on the limited influence of central banks on stablecoin rates, demonstrates how our work at the Gillmore Centre contributes to the wider discussion on financial stability, policy, and innovation.”

Featured image credit: Edited by Fintech News Switzerland, based on image by freepik