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Please note that all times are shown in the time zone of the conference. The current conference time is: 21st Apr 2025, 08:51:38am CEST
Technology, Cybersecurity, and Cryptocurrency Returns
Da Huang1, Jeffrey Yang2
1Northeastern University, United States of America; 2University of Utah, United States of America
Discussant: Dr. Roxana Mihet (University of Lausanne & Swiss Finance Institute)
Are cryptocurrencies mere speculative bubbles, or do their prices reflect the underlying technology? We address this question by examining flaws in the underlying technology that could lead to cryptocurrency theft and their effect on returns. Most cryptocurrencies are open-source projects hosted on GitHub with public source code, whose cybersecurity flaws are documented to be fixed later. We find that one flaw predicts a 5 basis points decrease in the coin's daily return. A portfolio that longs no-flaw coins and shorts high-flaw ones, which we term the “cybersecurity factor,” earns 30 basis points daily. Our results demonstrate that cryptocurrency prices reflect the quality of its underlying technology.
1Cornell University & University of Florida; 2Bayes Business School (formerly Cass); 3IESE Business School
Discussant: Martina Fraschini (University of Luxembourg)
We investigate the demand for safety within the crypto ecosystem, where investors cannot frictionlessly resort to traditional asset classes. To enter and exit crypto markets, investors pay substantial fees associated with fiat deposits and withdrawals, while facing increased scrutiny from tax authorities over capital gains. Coupled with regulatory uncertainty around crypto trading, large institutions may leave significant resources “trapped” in this market. Our analysis shows that stablecoins cater to investors’ safety demand, as measured by the spread between the T-bill yield and the overnight index swap rate (“money premium”). An increase in the demand for safety leads to higher deposit volumes and lower interest rates in stablecoin lending pools than any other assets in the crypto space. During periods of market stress, stablecoin lending pools no longer respond to measures of demand for safety, whereas in normal times, these pools are consistently regarded as a safe alternative, without distinction among tokens and blockchains. Moreover, the demand for safe assets gravitates toward DeFi protocols with greater market size. Overall, the evidence suggests that investors’ demand for safety in DeFi mimics established patterns in traditional finance.
