A Blessing in Disguise? DeFi Exploits and Short-Horizon Responses in U.S. Commercial Paper Spreads
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arXiv
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| Formato: | Preprint |
| Publicado: |
2026
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| _version_ | 1866917365362458624 |
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| author | Lin, Tingyi |
| author_facet | Lin, Tingyi |
| contents | Do vulnerabilities in Decentralized Finance (DeFi) destabilize traditional short-term funding markets? While the prevailing ``Contagion Hypothesis'' posits that stablecoin reserve liquidations may transmit distress to traditional markets through fire-sale pressure, we document a short-horizon ``Flight-to-Quality'' pattern in the opposite direction. In the wake of major DeFi exploits, spreads on 3-month AA-rated commercial paper (CP) tend to narrow rather than widen. We interpret this pattern as consistent with a ``liquidity-recycling'' channel: capital leaving DeFi may be re-intermediated into traditional cash-management markets, with regulatory segmentation under SEC Rule 2a-7 making prime-eligible paper a plausible marginal destination. Because we do not directly observe daily fund-level routing into prime money market funds, this mechanism is inferred from pricing patterns and monthly holdings evidence rather than directly identified. The result is specific to exploit-driven operational shocks, this U.S. CP spread, and short event windows. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2601_08263 |
| institution | arXiv |
| publishDate | 2026 |
| record_format | arxiv |
| spellingShingle | A Blessing in Disguise? DeFi Exploits and Short-Horizon Responses in U.S. Commercial Paper Spreads Lin, Tingyi General Finance Econometrics Do vulnerabilities in Decentralized Finance (DeFi) destabilize traditional short-term funding markets? While the prevailing ``Contagion Hypothesis'' posits that stablecoin reserve liquidations may transmit distress to traditional markets through fire-sale pressure, we document a short-horizon ``Flight-to-Quality'' pattern in the opposite direction. In the wake of major DeFi exploits, spreads on 3-month AA-rated commercial paper (CP) tend to narrow rather than widen. We interpret this pattern as consistent with a ``liquidity-recycling'' channel: capital leaving DeFi may be re-intermediated into traditional cash-management markets, with regulatory segmentation under SEC Rule 2a-7 making prime-eligible paper a plausible marginal destination. Because we do not directly observe daily fund-level routing into prime money market funds, this mechanism is inferred from pricing patterns and monthly holdings evidence rather than directly identified. The result is specific to exploit-driven operational shocks, this U.S. CP spread, and short event windows. |
| title | A Blessing in Disguise? DeFi Exploits and Short-Horizon Responses in U.S. Commercial Paper Spreads |
| topic | General Finance Econometrics |
| url | https://arxiv.org/abs/2601.08263 |