Are stablecoins truly diversifiers, hedges, or safe havens against traditional cryptocurrencies as their name suggests?

We study the diversifier, hedge, and safe haven properties of stablecoins against traditional cryptocurrencies. Using the DCC-GARCH model and dummy variable regression, we examine the risk-dispersion abilities of USD-pegged and gold-pegged stablecoins against traditional cryptocurrencies, and also compare their risk-dispersion abilities with their underlying assets. The empirical results show that (i) stablecoins can serve as safe havens in specific situations, although most act merely as an effective diversifier in normal market conditions; (ii) gold-pegged stablecoins perform worse as safe havens than USD-pegged ones, but both of them perform better than their corresponding underlying assets, and (iii) the safe haven property of stablecoins changes across market conditions. The above results are robust when using time-varying copula models. We further evaluate the risk management applications of stablecoins by analyzing mixed cryptocurrency-stablecoin portfolios, finding evidence of USD-pegged stablecoins performing better than gold-pegged stablecoins in extreme risk reductions. Our work provides important insights into diversification for cryptocurrency investors.