Title page 1

Contents 1

Abstract 2

1. Introduction 3

2. Institutional Background 8

2.1. Stablecoins and Digital Money 9

2.2. Institutional Trust and Decentralized Trust 9

3. Model 12

3.1. Economy 12

3.2. Agent strategies 13

3.3. Unique equilibrium threshold 16

3.4. Comparative statics 18

3.5. Fundamental tradeoff and connection to empirics 19

4. Data 20

4.1. Key Variables 20

4.2. Controls 22

4.3. Summary Statistics 22

5. Empirical Results 24

5.1. Comparative Statics 24

5.2. Redemption Dynamics and Strategic Complementarities 26

5.3. Regime Shift 29

5.4. Supply Shocks to Congestion 31

5.5. Transfers to Tron 35

5.6. Implications 38

6. Conclusion 40

References 42

Internet Appendix 57

IA.A. Derivations 57

IA.B. Gas Fee Convexity 59

IA.C. Robustness of Baseline Results 60

IA.D. Robustness of Regime-Shift Results 61

IA.E. Figures and Tables 62

Table 1. Comparison of Fedwire and Ethereum Transaction Costs 50

Table 2. Summary Statistics 50

Table 3. Comparative Statics 51

Table 4. Stablecoin Redemptions are Higher When Congestion is High and Network Externalities are Low 52

Table 5. The Interaction of Congestion and Low Network Externalities is Concentrated in the Upper Tail of the Congestion Distribution 53

Table 6. Empty Slots Increase Ethereum Gas Fees 54

Table 7. The Empty Slots Supply Shock is Orthogonal to Demand Conditions 54

Table 8. Supply Shocks to Ethereum Congestion Shift Stablecoin Circulation to Solana 55

Table 9. Higher Ethereum Congestion Increases USDT Transfers to Tron 56

Figure 1. Gas Fees and Ratio to Transaction Value 45

Figure 2. Gas Fees vs. Number of Transactions 46

Figure 3. Possible Payoff differential π(γ, λ) as a function of λ for γ ∈ (γ, γ) 46

Figure 4. Redemptions under strategic complementarities in our model and pre-emptive redemptions in Bernardo and Welch (2004) 47

Figure 5. Empty Slots Rate on Ethereum 47

Figure 6. USDT Transfers from Ethereum to Tron 48

Figure 7. USDT Transfers from Ethereum to Tron vs. Gas Fees 49

Table IA.1. Gas Fee Convexity 63

Table IA.2. Summary Statistics for Daily Cross-Chain Analysis 63

Table IA.3. Strategic Complementarities Robustness: 52-Week Rolling Window 64

Table IA.4. Strategic Complementarities Robustness: 12-Week Rolling Window 65

Table IA.5. Robustness: Stablecoin-Specific Gas Fees 66

Table IA.6. Robustness: Daily Frequency, 365-Day Rolling Window 67

Table IA.7. Robustness: Daily Frequency, 90-Day Rolling Window 68

Table IA.8. Placebo: Redemptions on Solana and Tron and Ethereum Congestion 69

Table IA.9. Regime Shift: Daily Frequency 70

Figure IA.1. Gas Fees vs. Number of Transactions: Before and After Pectra 62