finance

Solana: Ascendancy of the High-Speed Blockchain 

by
Snehasish CHINARA

In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) explains the evolution of high performance blockchain powered cryptocurrency, Solana.

Historical context and background

Solana, a relatively new entrant in the cryptocurrency arena, emerged against the backdrop of an increasingly crowded and competitive landscape in the digital currency space. Founded in 2020 by Anatoly Yakovenko, a former engineer at Qualcomm, Solana sought to address some of the inherent scalability and speed limitations plaguing earlier blockchain platforms like Ethereum. The platform is named after the Solana Beach in California, where Yakovenko often surfed, symbolizing the project’s ambition to ride the waves of innovation and technological advancement.

Unlike many other cryptocurrencies that primarily rely on Proof of Work (PoW) or Proof of Stake (PoS) consensus mechanisms, Solana introduced a novel consensus mechanism known as Proof of History (PoH). This mechanism aims to optimize transaction processing speed by organizing transactions into a series of chronological events, enabling parallel transaction processing, and significantly enhancing scalability. Solana’s emphasis on scalability and throughput has positioned it as a promising platform for decentralized applications (dApps) and decentralized finance (DeFi) projects seeking high-performance blockchain infrastructure. Its innovative approach has garnered attention and support from investors and developers alike, propelling Solana into the spotlight as one of the leading contenders in the cryptocurrency space.

Solana Logo

Source: Google.

Figure 1. Key Dates in Solana History.

Source: Yahoo! Finance.

Key features

    Scalability

    Solana is designed to be highly scalable, capable of processing thousands of transactions per second. Its unique consensus mechanism, Proof of History (PoH), combined with a network of nodes running parallel processing, enables Solana to handle a high throughput of transactions efficiently.

    Fast Transaction Speeds

    With its focus on scalability, Solana boasts incredibly fast transaction speeds. Transactions can be confirmed in milliseconds, making it suitable for applications requiring rapid transaction processing, such as decentralized finance (DeFi) platforms and high-frequency trading.

    Low Transaction Costs

    Solana aims to keep transaction costs low, even during periods of high network activity. Its efficient use of resources and high throughput allow for cost-effective transactions, making it accessible to users and developers alike.

    Proof of History (PoH)

    Solana’s unique consensus mechanism, PoH, serves as a historical record for the ordering and time-stamping of transactions. By leveraging PoH, Solana achieves high throughput without sacrificing decentralization or security.

    Support for Smart Contracts

    Solana is compatible with smart contracts, allowing developers to build decentralized applications (dApps) and execute programmable transactions on the blockchain. It supports smart contract languages like Rust and Solidity, enabling a wide range of developers to build on the platform.

    Ecosystem and Development Tools

    Solana boasts a growing ecosystem of projects and development tools to support developers in building decentralized applications. Its developer-friendly environment includes tools such as Solana Studio, a web-based IDE for building and deploying smart contracts, and libraries for interacting with the Solana blockchain.

    Interoperability

    Solana is designed to be interoperable with other blockchains and protocols, facilitating seamless communication and asset transfer between different networks. This interoperability opens up possibilities for cross-chain decentralized applications and enhances the overall utility of the Solana ecosystem.

Use cases

    Non-Fungible Tokens (NFTs)

    Solana provides an efficient infrastructure for minting, trading, and storing NFTs. Artists, creators, and collectors are utilizing Solana-based marketplaces like Solanart to buy and sell digital collectibles, artwork, and virtual assets. Solana’s high throughput enables seamless NFT transactions, while its low fees make it appealing for creators seeking an alternative to Ethereum’s congested network.

    Gaming and Virtual Worlds

    Solana’s high-performance blockchain is well-suited for gaming applications and virtual worlds that require fast transaction processing and scalability. Game developers are leveraging Solana’s infrastructure to create blockchain-based games, in-game assets, and decentralized gaming platforms. Projects like Star Atlas, a space-themed massively multiplayer online game (MMO) built on Solana, demonstrate the platform’s potential to disrupt the gaming industry.

    Decentralized Autonomous Organizations (DAOs)

    Solana provides a robust framework for building decentralized autonomous organizations (DAOs) that enable community governance and decision-making. DAOs on Solana leverage smart contracts to automate voting mechanisms, distribute governance tokens, and execute proposals transparently and efficiently. These DAOs empower communities to collectively manage and govern decentralized protocols, platforms, and resources.

    Tokenization of Real-World Assets

    Solana facilitates the tokenization of real-world assets such as real estate, stocks, and commodities, enabling fractional ownership and increased liquidity. Projects are exploring Solana’s blockchain to tokenize and trade various asset classes, unlocking new investment opportunities and reducing barriers to entry for traditional markets.

Technology and underlying blockchain

At the core of Solana’s architecture is the Proof of History (PoH) consensus mechanism, which orders transactions before they are processed into blocks. This deterministic sequencing allows for parallel transaction processing and enhances overall network efficiency. Additionally, Solana utilizes a Byzantine Fault Tolerance (BFT) consensus algorithm called Tower BFT, which further ensures network security and integrity.

Solana’s blockchain implements a novel data structure known as the “Solana Architecture,” which includes a combination of a single global state, a high-speed networking stack, and a high-performance virtual machine (VM). This architecture enables Solana to achieve impressive transaction throughput, with the capability to process thousands of transactions per second (TPS) and sub-second transaction finality. Furthermore, Solana leverages a unique mechanism called “Turbine” to optimize block propagation and reduce network latency, enhancing the overall scalability and performance of the platform.

The Solana ecosystem also features a built-in decentralized exchange (DEX), supporting seamless token swaps and liquidity provision directly on-chain. Smart contracts on Solana are executed using a high-performance VM called Sealevel, which is designed to efficiently process complex computations while maintaining low transaction costs. Overall, Solana’s technology stack, comprising innovative consensus mechanisms, advanced data structures, and optimized networking protocols, positions it as a leading blockchain platform capable of supporting a wide range of decentralized applications (dApps) and use cases at scale.

Supply of coins

Solana (SOL) operates on a fixed supply model, with a maximum supply of 489,026,837 SOL tokens. Unlike traditional fiat currencies, Solana’s tokenomics are governed by the principles of cryptocurrency protocols. The initial distribution of SOL tokens occurred through a combination of token sales, strategic partnerships, ecosystem incentives, and network validators’ rewards. Notably, Solana employs a deflationary economic model, wherein a portion of transaction fees is burned, reducing the overall token supply over time. This deflationary mechanism is designed to counterbalance any potential inflationary pressures as the network expands, ensuring the long-term sustainability and scarcity of SOL tokens. Additionally, SOL tokens are used to facilitate various functions within the Solana ecosystem, including transaction fees, staking rewards, governance participation, and decentralized application interactions. As Solana continues to grow and gain adoption, the controlled and predictable token supply dynamics play a crucial role in maintaining the network’s integrity and value proposition.

Historical data for Solana

How to get the data?

The Solana (SOL) is a popular cryptocurrency on the market, and historical data for the Solana such as prices and volume traded can be easily downloaded from the internet sources such as Yahoo! Finance, Blockchain.com & CoinMarketCap. For example, you can download data for Solana on Yahoo! Finance (the Yahoo! code for Solana is SOL-USD).

Figure 2. Solana data

Source: Yahoo! Finance.

Historical data for the Solana market prices

The historical data for Solana market prices demonstrates a dynamic evolution marked by significant fluctuations and notable trends since its inception. Initially, SOL experienced modest trading activity and price levels, but as Solana gained recognition for its innovative blockchain architecture and scalability features, its market value began to ascend. Early adopters and investors drove demand for SOL tokens, leading to periods of rapid appreciation interspersed with corrections and consolidation phases. Milestones such as protocol upgrades, partnerships, and successful dApp launches often coincided with significant price movements. Moreover, broader market trends and sentiment towards cryptocurrencies influenced SOL’s price dynamics, contributing to both bullish and bearish cycles over time. Overall, SOL’s price trajectory reflects Solana’s journey from its early stages to becoming a prominent player in the blockchain space, highlighting its potential to revolutionize decentralized applications and digital finance despite the inherent volatility of the cryptocurrency market.

Figure 3 below represents the evolution of the price of Solana (SOL) in US dollar over the period April 2020 – December 2023. The price corresponds to the “closing” price (observed at 10:00 PM CET at the end of the month).

Figure 3. Evolution of the Solana (SOL) price

Source: Yahoo! Finance.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the Solana (SOL).

Download R file

The R program that you can download above allows you to download the data for the Solana (SOL) from the Yahoo! Finance website. The database starts on April, 2020.

Table 1 below represents the top of the data file for the Solana (SOL) downloaded from the Yahoo! Finance website with the R program.

Table 1. Top of the data file for the Solana (SOL)

Source: computation by the author (data: Yahoo! Finance website).

Python code

You can download the Python code used to download the data from Yahoo! Finance.

Download the Python code for USD Coin data

Python script to download Solana (SOL) historical data and save it to an Excel sheet::

import yfinance as yf

import pandas as pd

# Define the ticker symbol for Solana Coin

SOL_ticker = “SOL-USD”

# Define the date range for historical data

start_date = “2020-01-01”

end_date = “2022-01-01”

# Download historical data using yfinance

SOL_data = yf.download(SOL_ticker, start=start_date, end=end_date)

# Create a Pandas DataFrame from the downloaded data

doge_df = pd.DataFrame(SOL_data)

# Define the Excel file path

excel_file_path = “SOL_historical_data.xlsx”

# Save the data to an Excel sheet

SOL_df.to_excel(excel_file_path, sheet_name=”SOL_historical_data”)

print(f”Data saved to {excel_file_path}”)

# Make sure you have the required libraries installed and adjust the “start_date” and “end_date” variables to the desired date range for the historical data you want to download.

Evolution of the Solana (SOL)

Figure 4 below gives the evolution of the Solana (SOL) returns from April, 2020 to December 31, 2023 on a daily basis.

Figure 4. Evolution of the Solana (SOL) returns.

Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Solana (SOL)

The R program that you can download above also allows you to compute summary statistics about the returns of the Solana (SOL). Table 2 below presents the following summary statistics estimated for the Solana (SOL):

  • The mean

  • The standard deviation (the squared root of the variance)

  • The skewness

  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 2. Summary statistics for Solana (SOL).

Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Solana (SOL) returns

Historical distribution

Figure 5 represents the historical distribution of the Solana (SOL) daily returns for the period from April, 2020 to December 31, 2023.

Figure 5. Historical Solana (SOL) distribution of the returns.

Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from April, 2020 to December 31, 2023.

Figure 6 below represents the Gaussian distribution of the Solana (SOL) daily returns with parameters estimated over the period from April, 2020 to December, 2023.

Figure 6. Gaussian distribution of the Solana (SOL) returns.

Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Solana (SOL) returns

The R program that you can download above also allows you to compute risk measures about the returns of the Solana (SOL).

Table 3 below presents the following risk measures estimated for the Solana (SOL):

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)

  • The short-term volatility (the standard deviation estimated over the last three months)

  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)

  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)

  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)

  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 3. Risk measures for the Solana (SOL).

Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the Solana (SOL) while the study of the right tail is relevant for an investor holding a short position in the Solana (SOL).

Why should I be interested in this post?

This blog offers an engaging exploration into a cryptocurrency that transcends traditional finance, appealing to a wide audience due to its cultural relevance, investment potential, and vibrant community. Solana’s reputation for high performance in blockchain technology, boasting the capability to process thousands of transactions per second, makes it an appealing option for developers and users seeking efficient transaction processing. Moreover, staying updated on Solana can offer insights into the growth of its ecosystem, including the development of decentralized applications (dApps) and strategic partnerships. For investors, Solana’s increasing popularity and ecosystem growth may signal investment opportunities, making it worthwhile to track news and discussions surrounding the platform. Additionally, Solana’s innovative technical advancements in scalability, consensus mechanisms, and developer tools are of interest to those intrigued by blockchain technology. Engaging with the Solana community provides opportunities for networking and gaining valuable insights into this rapidly expanding ecosystem.

Related posts on the SimTrade blog

About cryptocurrencies

   ▶ Snehasish CHINARA Bitcoin: the mother of all cryptocurrencies

   ▶ Snehasish CHINARA How to get crypto data

   ▶ Alexandre VERLET Cryptocurrencies

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

   ▶ Jayati WALIA Returns

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Historical data for Solana

CoinMarketCap Historical data for Solana

About the author

The article was written in April 2024 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024).

Doge Coin: Unraveling the Phenomenon of the Internet’s Favourite Cryptocurrency

by

In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) explains the evolution of the most popular memecoin, Dogecoin.

Snehasish CHINARA

Historical context and background

Dogecoin, a cryptocurrency that started as a joke, quickly evolved into a significant player in the world of digital assets. Created in December 2013 by software engineers Billy Markus and Jackson Palmer, Dogecoin was initially intended to satirize the hype surrounding cryptocurrencies at the time. The coin’s logo features the Shiba Inu dog from the “Doge” meme, which was immensely popular on the internet during that period. Despite its humorous origins, Dogecoin gained traction due to its welcoming and inclusive community, as well as its low transaction fees and fast confirmation times.

The early days of Dogecoin saw rapid adoption and a vibrant online community rallying around the coin. It gained attention for its philanthropic efforts, including fundraising campaigns to sponsor charity events and support causes such as building water wells in developing countries and sponsoring Olympic athletes. These initiatives helped distinguish Dogecoin from other cryptocurrencies and fostered a sense of community among its users.

Over time, Dogecoin’s popularity continued to grow, fueled in part by endorsements from notable figures such as Elon Musk, who frequently tweeted about the coin, further amplifying its visibility. Despite facing occasional security issues and challenges, Dogecoin has persevered, becoming one of the most recognized and traded cryptocurrencies in the market. Its unique blend of humor, community spirit, and accessibility has endeared it to a wide range of users, making it a significant player in the ever-expanding crypto landscape.

Doge Coin Logo

Source: Yahoo! Finance.

Figure 1. Key Dates in Doge Coin History

Source: Yahoo! Finance .

Key features

    Decentralization

    Like most cryptocurrencies, Dogecoin operates on a decentralized network, meaning it is not controlled by any single entity or organization. Transactions are recorded on a public ledger known as the blockchain, which is maintained by a network of nodes.

    Scrypt Algorithm

    Dogecoin uses the Scrypt algorithm for its proof-of-work consensus mechanism, which is less energy-intensive compared to Bitcoin’s SHA-256 algorithm. This allows for greater accessibility to mining for individuals with standard computer hardware.

    Fast Transactions

    Dogecoin boasts relatively fast transaction times, with blocks being mined approximately every minute. This makes it suitable for quick and efficient transfers of value.

    Low Transaction Fees

    Transaction fees on the Dogecoin network are typically minimal, making it cost-effective for transferring even small amounts of value.

    Meme Culture

    Dogecoin’s branding and marketing heavily leverage internet meme culture, particularly the “Doge” meme featuring the Shiba Inu dog. This playful and approachable branding sets Dogecoin apart from other cryptocurrencies and contributes to its widespread appeal.

Use cases

    Tipping

    Dogecoin gained popularity early on for its use as a tipping currency on social media platforms like Reddit and Twitter. Users can easily send small amounts of Dogecoin to content creators or other users as a form of appreciation.

    Charitable Donations

    The Dogecoin community has a history of supporting charitable causes and disaster relief efforts. Dogecoin has been used to raise funds for various initiatives, including sponsoring athletes, funding clean water projects, and aiding during natural disasters.

    E-commerce

    Some online merchants and retailers accept Dogecoin as a form of payment for goods and services. This includes businesses ranging from small independent shops to larger e-commerce platforms.

    Micropayments

    Dogecoin’s low transaction fees and fast confirmation times make it suitable for micropayments, allowing users to easily transfer small amounts of value online.

    Community Engagement

    Dogecoin continues to serve as a vehicle for community engagement and participation. Its lighthearted and inclusive nature fosters a sense of camaraderie among its users, who often come together for events, fundraisers, and online discussions.

    Experimental Projects

    Developers and enthusiasts sometimes use Dogecoin for experimental projects or to explore new applications of blockchain technology. These projects can range from art and gaming to decentralized finance (DeFi) experiments.

Technology and underlying blockchain

Dogecoin operates on a blockchain-based technology similar to Bitcoin and many other cryptocurrencies. It employs a decentralized peer-to-peer network that relies on nodes spread across the globe to validate and record transactions. Dogecoin’s blockchain uses the Scrypt hashing algorithm, which was initially designed to facilitate quicker confirmation times compared to Bitcoin’s SHA-256 algorithm. This choice of algorithm allows for a more accessible mining process, enabling individuals with standard computer hardware to participate in securing the network and earning rewards. Transactions on the Dogecoin network are grouped into blocks, which are then added to the blockchain through a process known as mining. Miners compete to solve complex mathematical puzzles, and the first miner to solve a puzzle validates the transactions in a block and adds it to the blockchain. Dogecoin’s block time is approximately one minute, resulting in faster transaction confirmations compared to Bitcoin’s ten-minute block time. Additionally, Dogecoin originally had a limitless supply, with a fixed reward of 10,000 DOGE per block; however, this changed in 2014 to an inflationary model, where a fixed number of coins are added to the supply each year. This combination of technology and economic design contributes to Dogecoin’s unique characteristics and its appeal within the cryptocurrency ecosystem.

Supply of coins

Dogecoin’s supply dynamics are distinctive within the cryptocurrency landscape. Initially launched with no hard cap on its total supply, Dogecoin features an inflationary issuance model designed to maintain a steady influx of coins into the market. Unlike Bitcoin’s fixed supply of 21 million coins, Dogecoin’s issuance rate started at 5 billion coins per year and gradually decreases over time. This inflationary nature ensures a continuous supply of Dogecoin, theoretically allowing for ongoing miner rewards and a sustained incentive for network participation. However, it’s worth noting that while the supply of Dogecoin is technically infinite, the rate of new coin creation diminishes over time, resulting in a decreasing inflation rate and a more stable supply trajectory. This unique supply mechanism distinguishes Dogecoin from many other cryptocurrencies and can influence its long-term economic dynamics and utility as a medium of exchange or store of value.

Historical data for Doge Coin

How to get the data?

The Doge Coin is popular cryptocurrency on the market, and historical data for the Doge Coin such as prices and volume traded can be easily downloaded from the internet sources such as Yahoo! Finance, Blockchain.com & CoinMarketCap. For example, you can download data for Doge Coin on Yahoo! Finance (the Yahoo! code for Doge Coin is Doge-USD).

Figure 2. Doge Coin data

Source: Yahoo! Finance.

Historical data for the Doge Coin market prices

Since its inception in 2013, Dogecoin has experienced notable price fluctuations, driven by a combination of factors including market speculation, community engagement, and broader trends in the digital asset space. Initially launched as a joke currency, Dogecoin’s price remained relatively stable for several years, trading at fractions of a cent. However, its price surged dramatically in early 2021, fueled by social media hype and celebrity endorsements, reaching all-time highs of over 70 cents per coin. This unprecedented rally brought Dogecoin into the spotlight, attracting widespread attention from investors and media outlets. Despite subsequent price corrections, Dogecoin has maintained a prominent position in the cryptocurrency market, with its price influenced by various factors including Elon Musk’s tweets, meme culture, and broader market sentiment. Overall, the historical price evolution of Dogecoin exemplifies the volatile and dynamic nature of the cryptocurrency market, highlighting the interplay between community enthusiasm, market speculation, and broader industry trends.

Figure 3 below represents the evolution of the price of Doge Coin in US dollar over the period November 2018 – December 2022. The price corresponds to the “closing” price (observed at 10:00 PM CET at the end of the month).

Figure 3. Evolution of the Doge Coin price

Source: Yahoo! Finance.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the Doge Coin.

Download R file

Data file

The R program that you can download above allows you to download the data for the Doge Coin from the Yahoo! Finance website. The database starts on October, 2018.

Table 1 below represents the top of the data file for the Doge Coin downloaded from the Yahoo! Finance website with the R program.

Table 1. Top of the data file for the DOGE Coin

Source: computation by the author (data: Yahoo! Finance website).

Python code

You can download the Python code used to download the data from Yahoo! Finance.

Download the Python code for USD Coin data

Python script to download Doge historical data and save it to an Excel sheet::

import yfinance as yf

import pandas as pd

# Define the ticker symbol for Doge Coin

doge_ticker = “DOGE-USD”

# Define the date range for historical data

start_date = “2020-01-01”

end_date = “2022-01-01”

# Download historical data using yfinance

doge_data = yf.download(doge_ticker, start=start_date, end=end_date)

# Create a Pandas DataFrame from the downloaded data

doge_df = pd.DataFrame(doge_data)

# Define the Excel file path

excel_file_path = “DOGE_historical_data.xlsx”

# Save the data to an Excel sheet

doge_df.to_excel(excel_file_path, sheet_name=”DOGE_historical_data”)

print(f”Data saved to {excel_file_path}”)

# Make sure you have the required libraries installed and adjust the “start_date” and “end_date” variables to the desired date range for the historical data you want to download

Evolution of the Doge Coin

Figure 4 below gives the evolution of the Doge Coin on a daily basis.

Figure 4. Evolution of the DOGE Coin Figure 5 below gives the evolution of the Doge Coin returns from November, 2018 to December 31, 2022 on a daily basis.

Figure 5. Evolution of the Doge Coin returns.

Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Doge Coin

The R program that you can download above also allows you to compute summary statistics about the returns of the Doge Coin. Table 2 below presents the following summary statistics estimated for the Doge Coin:

  • The mean

  • The standard deviation (the squared root of the variance)

  • The skewness

  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 2. Summary statistics for Doge Coin.

Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Doge Coin returns

Figure 6 represents the historical distribution of the Doge Coin daily returns for the period from November, 2018 to December 31, 2022.

Figure 6. Historical Doge Coin distribution of the returns.

Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from October, 2018 to December 31, 2022. Figure 7 below represents the Gaussian distribution of the Ethereum daily returns with parameters estimated over the period from October, 2018 to December, 2022.

Figure 9. Gaussian distribution of the Doge Coin returns.

Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Doge Coin returns

The R program that you can download above also allows you to compute risk measures about the returns of the Doge Coin.

Table 3 below presents the following risk measures estimated for the Doge Coin:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)

  • The short-term volatility (the standard deviation estimated over the last three months)

  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)

  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)

  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)

  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 3. Risk measures for the Doge Coin.

Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the XRP while the study of the right tail is relevant for an investor holding a short position in the Doge Coin.

Why should I be interested in this post?

This blog offers an engaging exploration into a cryptocurrency that transcends traditional finance, appealing to a wide audience due to its cultural relevance, investment potential, and vibrant community. From its origins as a meme coin to its remarkable price movements, understanding Dogecoin’s dynamics provides valuable insights into both the cryptocurrency market and internet culture. Delving into its technological underpinnings, community engagement, and market trends offers a concise yet comprehensive overview of Dogecoin’s significance in the evolving landscape of digital currencies.

Related posts on the SimTrade blog

About cryptocurrencies

   ▶ Snehasish CHINARA Bitcoin: the mother of all cryptocurrencies

   ▶ Snehasish CHINARA How to get crypto data

   ▶ Alexandre VERLET Cryptocurrencies

   ▶ Youssef EL QAMCAOUI Decentralised Financing

   ▶ Hugo MEYER The regulation of cryptocurrencies: what are we talking about?

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

   ▶ Jayati WALIA Returns

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Historical data for Doge Coin

CoinMarketCap Historical data for Doge Coin

About the author

The article was written in March 2024 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024).

USD Coin: Deep Dive into the Role of Stablecoins in Modern Finance

by
Snehasish CHINARA

In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) explains the stable coin USD Coin.

Historical context and background

USD Coin (USDC) is a type of cryptocurrency known as a stablecoin, designed to maintain a stable value relative to the US dollar (USD). It was launched in September 2018 by Centre Consortium, a collaboration between cryptocurrency exchange Coinbase and blockchain technology company Circle. The primary goal of USDC is to provide a digital asset that can be easily transferred between users and used for transactions, while minimizing the volatility typically associated with other cryptocurrencies like Bitcoin or Ethereum.

The need for stablecoins like USDC arose due to the inherent volatility of many cryptocurrencies. While Bitcoin and other digital assets have gained significant attention and adoption, their prices can fluctuate dramatically over short periods, which can make them less practical for everyday transactions and financial contracts. Stablecoins like USDC offer a solution to this problem by pegging their value to a stable asset, such as the US dollar, thereby providing stability and predictability for users.

USDC operates on the Ethereum blockchain as an ERC-20 token, making it compatible with a wide range of decentralized applications (dApps) and enabling seamless integration with the broader cryptocurrency ecosystem. This infrastructure allows users to easily send and receive USDC tokens across various platforms and services, including exchanges, wallets, and payment processors.

Since its launch, USDC has seen significant growth in adoption and usage. It has become one of the most widely used stablecoins in the cryptocurrency market, with billions of dollars worth of USDC tokens in circulation. Its stability and liquidity have made it a popular choice for traders, investors, and businesses looking to transact in digital assets without exposure to the volatility of other cryptocurrencies.

USD Coin Logo

Source: Yahoo! Finance.

Figure 1. Key Dates in USDC History

Source: Yahoo! Finance.

Key features

Stability

USD Coin is a stablecoin, meaning it is pegged to the value of the US dollar on a 1:1 basis. This stability is maintained through regular audits and backing by reserves of US dollars held in custody by regulated financial institutions.

Transparency

USDC operates on blockchain technology, providing transparency and immutability of transactions. Every USDC token is backed by an equivalent number of US dollars held in reserve, which is regularly audited and transparently reported to ensure trust among users.

Speed and Efficiency

Transactions involving USDC can be executed quickly and efficiently on blockchain networks, enabling near-instantaneous settlement compared to traditional banking systems, which may take days for cross-border transactions.

Global Accessibility

USDC enables borderless transactions, allowing users to send and receive payments globally without the need for intermediaries such as banks. This accessibility empowers individuals and businesses, particularly in regions with limited access to traditional financial services.

Interoperability

USDC is compatible with various blockchain platforms and protocols, including Ethereum, Algorand, and Solana, among others. This interoperability facilitates its integration into a wide range of decentralized applications (DApps) and decentralized finance (DeFi) ecosystems.

Use cases

Remittances and Cross-Border Payments:

USDC provides a cost-effective and efficient solution for remittance payments and cross-border transactions, enabling individuals and businesses to transfer value across borders quickly and securely without the need for traditional banking intermediaries.

Stable Value Storage

Due to its stable value pegged to the US dollar, USDC serves as a reliable store of value and a hedge against volatility in the cryptocurrency market. Users can hold USDC as a stable asset to preserve purchasing power and mitigate the risks associated with price fluctuations in other cryptocurrencies.

Decentralized Finance (DeFi) Applications

USDC is widely used as a liquidity provider and collateral asset in various DeFi protocols and applications such as decentralized exchanges (DEXs), lending platforms, yield farming, and liquidity pools. Users can leverage USDC to earn interest, borrow assets, or participate in yield farming strategies within the DeFi ecosystem.

Commerce and Payments

Merchants and businesses can accept USDC as a form of payment for goods and services, leveraging its fast transaction settlement times and low transaction fees compared to traditional payment methods. Integrating USDC payments can streamline cross-border commerce and reduce friction associated with fiat currency conversions.

Financial Inclusion

USDC plays a crucial role in expanding financial inclusion by providing access to digital financial services for individuals and communities underserved by traditional banking infrastructure. By utilizing blockchain technology and stablecoins like USDC, individuals without access to traditional banking services can participate in the global economy and access a wide range of financial products and services.

Technology and underlying blockchain

USD Coin (USDC) operates on a blockchain-based infrastructure, primarily leveraging the Ethereum blockchain as its foundation. Utilizing Ethereum’s smart contract functionality, USDC tokens are issued, transferred, and redeemed in a transparent and trustless manner. The ERC-20 standard, a set of rules and protocols defining interactions between tokens on the Ethereum network, governs the behavior of USDC tokens, ensuring compatibility with a wide range of wallets, exchanges, and decentralized applications (DApps). Moreover, USDC employs a consortium model for governance and operation, with regulated financial institutions serving as members responsible for the issuance, custody, and redemption of USDC tokens. These institutions adhere to strict regulatory compliance measures and conduct regular audits to verify that each USDC token is fully backed by an equivalent reserve of US dollars held in custody. This combination of blockchain technology, smart contracts, and regulatory oversight ensures the integrity, transparency, and stability of USD Coin, making it a trusted and widely adopted stablecoin within the cryptocurrency ecosystem.

ERC-20 Standard of Ethereum for USD Coin

The ERC-20 standard, short for Ethereum Request for Comment 20, is a widely adopted technical specification governing the creation and implementation of fungible tokens on the Ethereum blockchain. Introduced by Fabian Vogelsteller and Vitalik Buterin in 2015, ERC-20 defines a set of rules and functions that enable seamless interoperability between different tokens, ensuring compatibility with various decentralized applications (DApps) and wallets. Tokens adhering to the ERC-20 standard are characterized by a consistent set of methods, including transfer, balance inquiry, and approval mechanisms, facilitating easy integration and widespread adoption across the Ethereum ecosystem. This standardization has played a pivotal role in the proliferation of tokenization, empowering developers to create diverse tokenized assets, conduct crowdfunding campaigns through Initial Coin Offerings (ICOs), and establish decentralized exchanges (DEXs) where ERC-20 tokens are traded autonomously. Additionally, ERC-20 compliance enhances security and interoperability, fostering trust and usability within the Ethereum network.

Supply of coins

The supply dynamics of USD Coin (USDC) are governed by its underlying smart contract protocol and the management of its issuer, Centre Consortium, a collaboration between Circle and Coinbase. USDC operates on a principle of full backing, where each USDC token issued is backed by an equivalent number of US dollars held in reserve. This backing ensures a 1:1 peg to the US dollar, maintaining its stability. The issuance and redemption of USDC are facilitated through regulated financial institutions that hold the corresponding fiat reserves. Moreover, USDC’s supply is transparently audited on a regular basis, with attestations provided by reputable auditing firms to verify the adequacy of reserves. Through these mechanisms, the supply of USDC remains elastic, expanding or contracting based on market demand while preserving its stability and trustworthiness as a stablecoin in the digital asset ecosystem.

Historical data for USDC

How to get the data?

The USDC is popular cryptocurrency on the market, and historical data for the USDC such as prices and volume traded can be easily downloaded from the internet sources such as Yahoo! Finance, Blockchain.com & CoinMarketCap. For example, you can download data for USDC on Yahoo! Finance (the Yahoo! code for USD Coin is USDC-USD).

Figure 2. USD Coin data

Source: Yahoo! Finance.

Historical data for the USD Coin market prices

The historical market price of USD Coin (USDC) has remained relatively stable, as its primary function is to maintain a value pegged to the US dollar at a 1:1 ratio. Since its inception, USDC has consistently traded around the $1 mark, with minor fluctuations typically attributed to market dynamics and liquidity conditions. Investors and traders often utilize USDC as a safe haven asset or a means of temporarily exiting volatile cryptocurrency markets, contributing to its stability. This stability has made USDC a preferred choice for individuals and institutions seeking to hedge against cryptocurrency volatility or facilitate seamless transitions between digital and fiat currencies. Additionally, the transparent backing of USDC by reserves of US dollars held in custody by regulated financial institutions further enhances market confidence and contributes to its stable market price over time.The historical market price of USD Coin (USDC) has remained relatively stable, as its primary function is to maintain a value pegged to the US dollar at a 1:1 ratio. Since its inception, USDC has consistently traded around the $1 mark, with minor fluctuations typically attributed to market dynamics and liquidity conditions. Investors and traders often utilize USDC as a safe haven asset or a means of temporarily exiting volatile cryptocurrency markets, contributing to its stability. This stability has made USDC a preferred choice for individuals and institutions seeking to hedge against cryptocurrency volatility or facilitate seamless transitions between digital and fiat currencies. Additionally, the transparent backing of USDC by reserves of US dollars held in custody by regulated financial institutions further enhances market confidence and contributes to its stable market price over time.

Figure 3 below represents the evolution of the price of USD Coin in US dollar over the period Oct 2018 – Dec 2022. The price corresponds to the “closing” price (observed at 10:00 PM CET at the end of the month).

Figure 3. Evolution of the USD Coin price

Source: Yahoo! Finance.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the USD Coin.

Download R file

Data file

The R program that you can download above allows you to download the data for the USD Coin from the Yahoo! Finance website. The database starts on Oct, 2018. Table 1 below represents the top of the data file for the USD Coin downloaded from the Yahoo! Finance website with the R program.

Table 1. Top of the data file for the USD Coin

Source: computation by the author (data: Yahoo! Finance website).

Python code

You can download the Python code used to download the data from Yahoo! Finance.

Download the Python code for USD Coin data

Python script to download USD Coin historical data and save it to an Excel sheet::

import yfinance as yf

import pandas as pd

# Define the ticker symbol for USD Coin

usdc_ticker = “USDC-USD”

# Define the date range for historical data

start_date = “2020-01-01”

end_date = “2022-01-01”

# Download historical data using yfinance

usdc_data = yf.download(usdc_ticker, start=start_date, end=end_date)

# Create a Pandas DataFrame from the downloaded data

usdc_df = pd.DataFrame(usdc_data)

# Define the Excel file path

excel_file_path = “USDC_historical_data.xlsx”

# Save the data to an Excel sheet

usdc_df.to_excel(excel_file_path, sheet_name=”USDC Historical Data”)

print(f”Data saved to {excel_file_path}”)

# Make sure you have the required libraries installed and adjust the “start_date” and “end_date” variables to the desired date range for the historical data you want to download.

Evolution of the USD Coin

Figure 4 below gives the evolution of the USDC on a daily basis.

Figure 4. Evolution of the USD Coin.

Source: computation by the author (data: Yahoo! Finance website).

Figure 5 below gives the evolution of the USD Coin returns from Oct, 2018 to December 31, 2022 on a daily basis.

Figure 5. Evolution of the USD Coin returns

Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the USD Coin

The R program that you can download above also allows you to compute summary statistics about the returns of the USD Coin. Table 2 below presents the following summary statistics estimated for the USD Coin:

  • The mean

  • The standard deviation (the squared root of the variance)

  • The skewness

  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 2. Summary statistics for USDC.

Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the USD Coin returns

Historical distribution

Figure 6 represents the historical distribution of the USD Coin daily returns for the period from Oct, 2018 to December 31, 2022.

Figure 6. Historical USDC distribution of the returns.

Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from October, 2018 to December 31, 2022.

Figure 7 below represents the Gaussian distribution of the USD Coin daily returns with parameters estimated over the period from October, 2018 to December, 2022.

Figure 7. Gaussian distribution of the USDC returns.

Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the USD Coin returns

The R program that you can download above also allows you to compute risk measures about the returns of the USD Coin.

Table 3 below presents the following risk measures estimated for the USD Coin:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)

  • The short-term volatility (the standard deviation estimated over the last three months)

  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)

  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)

  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)

  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 3. Risk measures for the USDC.

Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the XRP while the study of the right tail is relevant for an investor holding a short position in the XRP.

Why should I be interested in this post?

The post offers an opportunity for both newcomers and seasoned cryptocurrency enthusiasts to delve into the concept of stablecoins, gaining insights into how digital assets maintain stability amidst market volatility. Furthermore, the post highlights USDC’s role in fostering financial inclusion by enabling borderless transactions, appealing to readers passionate about democratizing finance. Additionally, exploring USDC’s significance in the burgeoning realm of decentralized finance (DeFi) could intrigue those interested in innovative financial technologies and investment opportunities. Examining USDC’s historical performance and market dynamics can offer valuable insights for investors and traders, while shedding light on its compliance measures and regulatory landscape can address concerns regarding legal risks, contributing to readers’ understanding and confidence in this digital asset.

Related posts on the SimTrade blog

About cryptocurrencies

   ▶ Snehasish CHINARA Bitcoin: the mother of all cryptocurrencies

   ▶ Snehasish CHINARA How to get crypto data

   ▶ Alexandre VERLET Cryptocurrencies

   ▶ Youssef EL QAMCAOUI Decentralised Financing

   ▶ Hugo MEYER The regulation of cryptocurrencies: what are we talking about?

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

   ▶ Jayati WALIA Returns

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Historical data for USDC

CoinMarketCap Historical data for USDC

About the author

The article was written in March 2024 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024).

Tether: Unraveling the Impact of the Stablecoin on Modern Finance

by

Snehasish CHINARA

In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) explains the cryptocurrency Tether.

Historical context and background

Tether (USDT) emerged in July 2014 as a groundbreaking cryptocurrency designed to bridge the gap between traditional fiat currencies and the digital realm. Conceived by Brock Pierce, Craig Sellars, and Reeve Collins, Tether aimed to offer a stable alternative to the price volatility commonly associated with other cryptocurrencies like Bitcoin. Functioning as a stablecoin, Tether is pegged to the value of a fiat currency, primarily the US Dollar, maintaining a 1:1 ratio. This pegging mechanism provides a degree of price stability, making Tether an attractive option for traders and investors seeking to mitigate the risks inherent in the crypto market. Since its inception, Tether has grown to become one of the most widely used cryptocurrencies, playing a pivotal role in facilitating liquidity and serving as a gateway for funds within the broader digital asset ecosystem. Despite its popularity, Tether has faced scrutiny regarding its transparency and reserve backing, adding layers of complexity to its intriguing history within the crypto landscape.

Tether Logo

Source: Yahoo! Finance

Figure 1. Key Dates in Tether History

Source: Yahoo! Finance

Key features

  • Stability: Tether is designed to maintain a 1:1 peg with a fiat currency, typically the US Dollar. This pegging mechanism provides stability in value, reducing the volatility commonly associated with other cryptocurrencies.

  • Widespread Adoption: Tether is widely adopted across various cryptocurrency exchanges and platforms. Its broad acceptance makes it a popular choice for traders and investors.

  • Liquidity Provider: Tether serves as a crucial source of liquidity within the cryptocurrency market. Traders often use USDT as a safe haven during times of market turbulence.

  • Fast Transactions: Tether transactions are conducted on blockchain networks like Ethereum and Tron, enabling fast and efficient cross-border transactions compared to traditional banking systems.

  • Global Accessibility: Tether provides a borderless financial solution, allowing users to send and receive funds globally without the need for traditional banking intermediaries.

  • Smart Contract Compatibility: Tether is compatible with blockchain-based smart contracts, enabling developers to integrate it into decentralized applications (DApps) for various financial services.

Use cases

  • Trading Pairs: Tether is extensively used as a trading pair on cryptocurrency exchanges. It allows traders to quickly move in and out of positions while avoiding the market volatility associated with other digital assets.

  • Hedging: Investors often use Tether as a hedging tool to safeguard their portfolios against market fluctuations. By converting their holdings to USDT during uncertain times, investors can protect their capital.

  • Remittances: Tether facilitates cross-border remittances, offering a faster and potentially more cost-effective alternative to traditional money transfer services.

  • Stable Value Storage: Tether serves as a stable store of value, allowing users to preserve their wealth in a cryptocurrency that is less prone to price fluctuations compared to other volatile digital assets.

  • Decentralized Finance (DeFi): Tether is a common stablecoin used in decentralized finance protocols for lending, borrowing, and yield farming activities within the growing DeFi ecosystem.

  • Tokenized Assets: Tether is utilized to represent traditional assets in tokenized form on blockchain platforms, enabling fractional ownership and increased liquidity for real-world assets.

Controversy

While Tether has gained popularity for its stability and utility, it has also faced criticism and regulatory scrutiny, particularly regarding its reserve backing and transparency. The paper “Is Bitcoin Really Untethered?”, analyses Tether’s controversies revealing that the significant growth of Tether, the largest pegged cryptocurrency, may not solely be driven by organic investor demand but also by a scheme to artificially inflate cryptocurrency prices. By analyzing the blockchains of Bitcoin and Tether, the researchers found evidence suggesting that a major player on Bitfinex utilizes Tether to purchase large amounts of Bitcoin during price downturns, effectively supporting Bitcoin prices. This intervention is particularly pronounced near round-number price thresholds, indicating a strategic approach to price support. The data also suggests that Tether issuance correlates with a month-end need for dollar reserves, implying partial reserve backing. Overall, these findings lend support to the hypothesis that Tether’s growth is supply-driven and potentially manipulative.

Furthermore, the paper highlights the broader implications of these findings, suggesting that price manipulation in cryptocurrencies can have significant distortive effects beyond standard supply-and-demand dynamics. It highlights the need for external surveillance, monitoring, and regulatory frameworks in the cryptocurrency space, challenging the notion that innovative technologies alone can bypass the need for traditional oversight. The conclusion suggests that while cryptocurrencies offer new possibilities for financial innovation, they are not immune to the risks associated with dubious activities and speculative bubbles, which could ultimately lead to further price distortions and negative impacts on the market.

Technology and underlying blockchain

Tether (USDT), a the stablecoin, utilizes blockchain technology across various networks to provide a digital asset pegged to traditional fiat currencies. The Ethereum-based ERC-20 version is the most prevalent, benefiting from Ethereum’s widespread adoption and smart contract capabilities, making it a cornerstone for decentralized exchanges and DeFi applications. Tether also operates on the Tron blockchain (TRC-20), offering faster transactions and reduced fees, particularly appealing for high-frequency trading. Acknowledging the demand for scalability and cost-effectiveness, Tether has expanded to alternative blockchains like Binance Smart Chain and Solana. These adaptations highlight Tether’s commitment to meeting diverse market needs. Managed by Tether Limited, the stablecoin asserts stability through regular audits and claims of holding equivalent fiat reserves, although controversies have arisen regarding transparency. The dynamic interplay of Tether across various blockchains underscores its pivotal role in the evolving landscape of digital finance.

Supply of coins

The market supply of Tether (USDT), a leading stablecoin, plays a crucial role in the broader cryptocurrency ecosystem. Tether’s supply dynamics are intrinsically linked to its unique issuance mechanism. Tether Limited, the company behind USDT, mints new tokens by receiving equivalent amounts of fiat currency, primarily the US Dollar, in its reserves. This issuance process is supposed to ensure a 1:1 peg between USDT and the underlying fiat currency, promoting price stability.

The market supply of Tether expands as demand for the stablecoin increases. Traders and investors often turn to USDT as a safe haven during times of high volatility, effectively increasing the circulating supply. This heightened demand results in additional Tether being issued to maintain the peg, thus influencing the overall supply in the market.

Monitoring Tether’s supply is of particular interest due to its significant impact on liquidity within the cryptocurrency space. An influx of USDT into the market provides traders with a reliable means to navigate price fluctuations without fully exiting the crypto market, enhancing liquidity and potentially mitigating market volatility.

Historical data for Tether

How to get the data?

The Tether is popular cryptocurrency on the market, and historical data for the Tether such as prices and volume traded can be easily downloaded from the internet sources such as Yahoo! Finance, Blockchain.com & CoinMarketCap. For example, you can download data for Tether on Yahoo! Finance (the Yahoo! code for Tether is USDT-USD).

Figure 1. Tether data

Source: Yahoo! Finance.

Historical data for the Tether market prices

Exploring the historical market price of Tether (USDT) unveils a wealth of insights into the cryptocurrency’s role and its impact on the broader market. The stability of Tether, designed to maintain a 1:1 peg with traditional fiat currencies, is reflected in its price history. Observing deviations from this peg over time provides a gauge of Tether’s effectiveness as a stablecoin. Moreover, fluctuations in Tether’s historical price serve as a barometer for market sentiment, indicating periods of increased demand for stability during cryptocurrency market volatility. Tether’s price movements also offer a lens into liquidity trends, showcasing its role in various financial activities within the crypto ecosystem. Crucially, analyzing Tether’s historical price can illuminate market responses to controversies, regulatory developments, and its correlation with other major cryptocurrencies. Understanding these dynamics is essential for investors and traders seeking to navigate the intricate landscape of digital assets and stablecoins.

Figure 2 below represents the evolution of the price of Tether in US dollar over the period Nov 2017 – Dec 2023. The price corresponds to the “closing” price (observed at 10:00 PM CET at the end of the month).

Figure 2. Evolution of the Tether price

Source: Yahoo! Finance.

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the Ethereum.

Download R file

Data file

The R program that you can download above allows you to download the data for the Ethereum from the Yahoo! Finance website. The database starts on December, 2017.

Table 1 below represents the top of the data file for the Ethereum downloaded from the Yahoo! Finance website with the R program.

Table 1. Top of the data file for the Tether

Source: computation by the author (data: Yahoo! Finance website).

Python code

You can download the Python code used to download the data from Yahoo! Finance.

Download the Excel file with Tether data

Python script to download Ethereum historical data and save it to an Excel sheet::

import yfinance as yf

import pandas as pd

# Define the ticker symbol for Tether

eth_ticker = “USDT-USD”

# Define the date range for historical data

start_date = “2020-01-01”

end_date = “2022-01-01”

# Download historical data using yfinance

usdt_data = yf.download(eth_ticker, start=start_date, end=end_date)

# Create a Pandas DataFrame from the downloaded data

usdt_df = pd.DataFrame(usdt_data)

# Define the Excel file path

excel_file_path = “tether_historical_data.xlsx”

# Save the data to an Excel sheet

usdt_df.to_excel(excel_file_path, sheet_name=”USDT Historical Data”)

print(f”Data saved to {excel_file_path}”)

# Make sure you have the required libraries installed and adjust the “start_date” and “end_date” variables to the desired date range for the historical data you want to download.

Evolution of the Tether

Figure 3 below gives the evolution of the Tether on a daily basis.

Figure 3. Evolution of the Tether.

Source: computation by the author (data: Yahoo! Finance website).

Figure 4 below gives the evolution of the Tether returns from November 09, 2017 to December 31, 2022 on a daily basis.

Figure 4. Evolution of the Tether returns.

Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Ethereum

The R program that you can download above also allows you to compute summary statistics about the returns of the Tether.

Table 4 below presents the following summary statistics estimated for the Ethereum:

  • The mean

  • The standard deviation (the squared root of the variance)

  • The skewness

  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 2. Summary statistics for Tether.

Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Tether returns

Historical distribution

Figure 5 represents the historical distribution of the Tether daily returns for the period from November 09, 2017 to December 31, 2022.

Figure 5. Historical Tether distribution of the returns.

Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from November 09, 2017 to December 31, 2022.

Figure 6 below represents the Gaussian distribution of the Tether daily returns with parameters estimated over the period from November 09, 2017 to December 31, 2022.

Figure 6. Gaussian distribution of the Tether returns.

Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Tether returns

The R program that you can download above also allows you to compute risk measures about the returns of the tether.

Table 3 below presents the following risk measures estimated for the Ethereum:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)

  • The short-term volatility (the standard deviation estimated over the last three months)

  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)

  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)

  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)

  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 5. Risk measures for the Tether.

Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the XRP while the study of the right tail is relevant for an investor holding a short position in the XRP.

Why should I be interested in this post?

Tether is a compelling subject for students, especially those in finance, economics, business, and technology. Ripple’s focus on revolutionizing cross-border transactions and its unique blockchain technology offer insights into innovations in financial technology. Exploring Tether provides a deeper understanding of blockchain, cryptocurrency markets, stable coins, regulatory challenges, and the practical applications of decentralized systems. Students can gain valuable knowledge about market dynamics, investment opportunities, and the intersection of technology and finance by delving into the complexities of Tether and its impact on the financial industry.

Related posts on the SimTrade blog

About cryptocurrencies

   ▶ Snehasish CHINARA Bitcoin: the mother of all cryptocurrencies

   ▶ Snehasish CHINARA How to get crypto data

   ▶ Alexandre VERLET Cryptocurrencies

   ▶ Youssef EL QAMCAOUIDecentralised Financing

   ▶ Hugo MEYERThe regulation of cryptocurrencies: what are we talking about?

   ▶ JOHN M. GRIFFIN, AMIN SHAMS Is Bitcoin Really Untethered?

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

   ▶ Jayati WALIA Returns

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Historical data for Tether

CoinMarketCap Historical data for Tether

About the author

The article was written in January 2024 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024).

XRP: Pioneering Financial Revolution

by

Snehasish CHINARA

In this article, Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024) explains the cryptocurrency XRP/Ripple.

Historical context and background

XRP, the digital currency associated with the Ripple network, emerged against the backdrop of a growing interest in blockchain technology and its potential applications beyond cryptocurrencies. The development of Ripple began in 2012 when Jed McCaleb, Chris Larsen, and Arthur Britto joined forces to create a decentralized digital currency system. Ripple Labs, the company behind XRP, aimed to address the inefficiencies in traditional cross-border payments by providing a fast and cost-effective alternative. Unlike Bitcoin, which relies on a proof-of-work consensus mechanism, Ripple utilizes a unique consensus algorithm called the Ripple Protocol Consensus Algorithm (RPCA). The XRP Ledger, the underlying technology, is designed to facilitate quick and secure transactions, making it particularly appealing for financial institutions. Over the years, Ripple has garnered both support and criticism within the crypto community due to its centralized nature and ongoing legal challenges. Nevertheless, its focus on facilitating seamless global transactions has positioned XRP as a significant player in the evolving landscape of digital assets.

XRP Logo

Source: Yahoo! Finance

Figure 1. Key Dates in XRP History

Source: Yahoo! Finance and other internet sources

Key features and use cases

  • Fast and Low-Cost Transactions: One of the primary features of XRP is its speed and cost-effectiveness. The XRP Ledger is capable of processing transactions in just a few seconds, making it significantly faster than traditional banking systems and some other cryptocurrencies. The low transaction fees associated with XRP contribute to its appeal for cross-border payments.

  • Liquidity and Scalability: XRP is designed to handle a high volume of transactions, providing liquidity for financial institutions. This scalability is crucial for the adoption of XRP in large-scale financial applications, including remittances and institutional transfers.

  • Interoperability: Ripple aims to facilitate interoperability between different financial systems. XRP can act as a bridge currency between fiat currencies, enabling seamless and efficient transactions across borders. This interoperability is particularly valuable in the context of global finance.

  • Decentralization with Unique Consensus Algorithm: While Ripple has faced criticism for some aspects of centralization, the XRP Ledger employs the Ripple Protocol Consensus Algorithm (RPCA) for transaction validation. This consensus mechanism is more energy-efficient compared to proof-of-work used by some other cryptocurrencies.

  • Partnerships with Financial Institutions: Ripple has formed partnerships with various financial institutions, including banks and payment service providers. The aim is to leverage XRP for real-time, cross-border payments, reducing settlement times and costs for these institutions.

  • Smart Contracts and Tokenization: Ripple has also explored adding smart contract functionality to the XRP Ledger, expanding its use cases beyond simple transactions. Additionally, the platform has the potential for tokenization of real-world assets, allowing for the representation of various assets on the blockchain.

  • Stability and Predictable Supply: XRP has a fixed supply of 100 billion tokens, with a portion held by Ripple Labs. This fixed supply aims to provide stability and predictability, which could be attractive for businesses and investors.

While XRP has faced regulatory challenges and debates about its decentralization, its unique features and focus on solving real-world financial issues position it as a cryptocurrency with substantial potential in the global financial landscape.

Technology and underlying blockchain

XRP, the cryptocurrency associated with the Ripple network, operates on a distinct technological framework, utilizing a consensus algorithm that sets it apart from traditional proof-of-work systems. At the heart of XRP’s technology is the XRP Ledger, a decentralized blockchain that enables fast and secure transactions. The unique consensus mechanism employed by Ripple is known as the Ripple Protocol Consensus Algorithm (RPCA). Unlike the energy-intensive mining processes seen in proof-of-work systems, RPCA operates on a consensus model that involves a network of independent validators reaching agreement on the order and validity of transactions. This consensus mechanism allows the XRP Ledger to achieve high throughput and swift confirmation times, making it well-suited for the efficient processing of cross-border payments and financial transactions. Additionally, the XRP Ledger supports the issuance of various tokens, potentially expanding its use cases beyond its native cryptocurrency. Despite debates about the decentralization of Ripple, the technology behind XRP continues to evolve, showcasing a commitment to addressing the challenges and opportunities in the rapidly evolving blockchain and cryptocurrency space. Additionally, the platform has explored the integration of smart contract functionality, opening possibilities for more complex and programmable transactions. The focus on scalability, interoperability, and speed positions XRP as a blockchain solution tailored for the demands of the global financial industry, particularly in the context of cross-border payments and remittances.

Supply of coins

The supply dynamics of XRP, the native cryptocurrency of the Ripple network, play a crucial role in shaping its market characteristics. Unlike Bitcoin, which relies on a mining process to gradually release new coins into circulation, XRP was created with its entire supply generated at inception. XRP has a fixed maximum supply of 100 billion coins, a feature that distinguishes it from some other cryptocurrencies with potentially infinite supplies. Notably, a substantial portion of the XRP supply is held by Ripple Labs, the company behind the cryptocurrency. Approximately 55 billion XRP are held in escrow by Ripple Labs, the company behind the development of the Ripple protocol. This escrow mechanism is designed to release a specific amount of XRP into circulation each month, reducing the potential for market manipulation and ensuring a predictable supply trajectory.

This allocation has been a point of discussion and scrutiny within the crypto community, with debates surrounding the potential impact of such centralization on the coin’s decentralization ethos. Ripple has taken steps to address concerns, implementing strategies such as the escrow system, which locks a large amount of XRP in time-released contracts to be gradually released into circulation. The controlled release aims to provide transparency and mitigate concerns related to sudden market influxes. The fixed supply, along with Ripple’s strategic initiatives, contributes to the stability and predictability of XRP in the market, influencing investor perceptions and shaping the overall market dynamics of the cryptocurrency.

Figure 2. Number of XRP Transaction per Day

Source: BitInfoCharts (Ethereum Transactions historical chart)

Historical data for XRP

How to get the data?

The XRP is popular cryptocurrency on the market, and historical data for the XRP such as prices and volume traded can be easily downloaded from the internet sources such as Yahoo! Finance, Blockchain.com & CoinMarketCap. For example, you can download data for XRP on Yahoo! Finance (the Yahoo! code for XRP is XRP-USD).

Figure 3. XRP data

Source: Yahoo! Finance

Historical data for the XRP market prices

Access to historical data on XRP, the cryptocurrency affiliated with Ripple, offers investors valuable insights and tools for decision-making. By analyzing past price trends and patterns, investors can better anticipate potential movements in XRP’s value, aiding in strategic buy or sell decisions. Historical data also serves as a record of XRP’s volatility, allowing investors to assess and manage risks effectively. Examining market sentiment during different periods provides a nuanced understanding of external factors that may impact XRP, such as regulatory developments or technological upgrades. Additionally, historical performance comparisons with other cryptocurrencies or traditional assets help investors evaluate XRP’s relative strength and potential for returns, informing optimal portfolio management. Event analysis around significant occurrences, such as partnerships or regulatory changes, assists in anticipating market reactions to future events. Furthermore, historical data aids in identifying market cycles, supporting investors in aligning their strategies with the prevailing market conditions. Recognizing key support and resistance levels based on historical prices enhances risk management by guiding entry and exit points. While historical data is a valuable tool, investors should blend it with current market analysis and fundamental factors for comprehensive decision-making, considering the inherent unpredictability of the cryptocurrency market.

Figure 4 below represents the evolution of the price of XRP in US dollar over the period Nov 2017 – Dec 2023. The price corresponds to the “closing” price (observed at 10:00 PM CET at the end of the month).

Figure 4. Evolution of the XRP price

Source: Yahoo! Finance

R program

The R program below written by Shengyu ZHENG allows you to download the data from Yahoo! Finance website and to compute summary statistics and risk measures about the XRP.

Download R file

Data file

The R program that you can download above allows you to download the data for the Ethereum from the Yahoo! Finance website. The database starts on December, 2017.

Table 3 below represents the top of the data file for the Ethereum downloaded from the Yahoo! Finance website with the R program.

Table 3. Top of the data file for XRP.

Source: computation by the author (data: Yahoo! Finance website)

Python code

You can download the Python code used to download the data from Yahoo! Finance.

Download the Excel file with Ethereum data

Python script to download XRP historical data and save it to an Excel sheet::

import yfinance as yf

import pandas as pd

# Define the ticker symbol for Ethereum

xrp_ticker = “XRP-USD”

# Define the date range for historical data

start_date = “2020-01-01”

end_date = “2022-01-01”

# Download historical data using yfinance

xrp_data = yf.download(xrp_ticker, start=start_date, end=end_date)

# Create a Pandas DataFrame from the downloaded data

xrp_df = pd.DataFrame(xrp_data)

# Define the Excel file path

excel_file_path = “xrp_historical_data.xlsx”

# Save the data to an Excel sheet

xrp_df.to_excel(excel_file_path, sheet_name=”XRP Historical Data”)

print(f”Data saved to {excel_file_path}”)

# Make sure you have the required libraries installed and adjust the “start_date” and “end_date” variables to the desired date range for the historical data you want to download.

Evolution of the Ethereum

Figure 5 below gives the evolution of the Ethereum on a daily basis.

Figure 5. Evolution of the XRP.

Source: computation by the author (data: Yahoo! Finance website).

Figure 6 below gives the evolution of the Ethereum returns from November 09, 2017 to December 31, 2022 on a daily basis.

Figure 6. Evolution of the XRP returns.

Source: computation by the author (data: Yahoo! Finance website).

Summary statistics for the Ethereum

The R program that you can download above also allows you to compute summary statistics about the returns of the Ethereum.

Table 4 below presents the following summary statistics estimated for the Ethereum:

  • The mean

  • The standard deviation (the squared root of the variance)

  • The skewness

  • The kurtosis.

The mean, the standard deviation / variance, the skewness, and the kurtosis refer to the first, second, third and fourth moments of statistical distribution of returns respectively.

Table 4. Summary statistics for XRP

Source: computation by the author (data: Yahoo! Finance website).

Statistical distribution of the Ethereum returns

Figure 7 represents the historical distribution of the Ethereum daily returns for the period from November 09, 2017 to December 31, 2022.

Figure 7. Historical XRP distribution of the returns.

Source: computation by the author (data: Yahoo! Finance website).

Gaussian distribution

The Gaussian distribution (also called the normal distribution) is a parametric distribution with two parameters: the mean and the standard deviation of returns. We estimated these two parameters over the period from November 09, 2017 to December 31, 2022.

Figure 8 below represents the Gaussian distribution of the XRP daily returns with parameters estimated over the period from November 09, 2017 to December 31, 2022.

Figure 9. Gaussian distribution of the XRP returns.

Source: computation by the author (data: Yahoo! Finance website).

Risk measures of the Ethereum returns

The R program that you can download above also allows you to compute risk measures about the returns of the Ethereum.

Table 5 below presents the following risk measures estimated for the Ethereum:

  • The long-term volatility (the unconditional standard deviation estimated over the entire period)

  • The short-term volatility (the standard deviation estimated over the last three months)

  • The Value at Risk (VaR) for the left tail (the 5% quantile of the historical distribution)

  • The Value at Risk (VaR) for the right tail (the 95% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the left tail (the average loss over the 5% quantile of the historical distribution)

  • The Expected Shortfall (ES) for the right tail (the average loss over the 95% quantile of the historical distribution)

  • The Stress Value (SV) for the left tail (the 1% quantile of the tail distribution estimated with a Generalized Pareto distribution)

  • The Stress Value (SV) for the right tail (the 99% quantile of the tail distribution estimated with a Generalized Pareto distribution)

Table 5. Risk measures for the XRP.

Source: computation by the author (data: Yahoo! Finance website).

The volatility is a global measure of risk as it considers all the returns. The Value at Risk (VaR), Expected Shortfall (ES) and Stress Value (SV) are local measures of risk as they focus on the tails of the distribution. The study of the left tail is relevant for an investor holding a long position in the XRP while the study of the right tail is relevant for an investor holding a short position in the XRP.

Why should I be interested in this post?

XRP, the cryptocurrency associated with Ripple, is a compelling subject for students, especially those in finance, economics, business, and technology. Ripple’s focus on revolutionizing cross-border transactions and its unique blockchain technology offer insights into innovations in financial technology. Exploring XRP provides a deeper understanding of blockchain, cryptocurrency markets, regulatory challenges, and the practical applications of decentralized systems. Students can gain valuable knowledge about market dynamics, investment opportunities, and the intersection of technology and finance by delving into the complexities of XRP and its impact on the financial industry.

Related posts on the SimTrade blog

About cryptocurrencies

   ▶ Snehasish CHINARA Bitcoin: the mother of all cryptocurrencies

   ▶ Snehasish CHINARA How to get crypto data

   ▶ Alexandre VERLET Cryptocurrencies

   ▶ Youssef EL QAMCAOUIDecentralised Financing

   ▶ Hugo MEYERThe regulation of cryptocurrencies: what are we talking about?

About statistics

   ▶ Shengyu ZHENG Moments de la distribution

   ▶ Shengyu ZHENG Mesures de risques

   ▶ Jayati WALIA Returns

Useful resources

Academic research about risk

Longin F. (2000) From VaR to stress testing: the extreme value approach Journal of Banking and Finance, N°24, pp 1097-1130.

Longin F. (2016) Extreme events in finance: a handbook of extreme value theory and its applications Wiley Editions.

Data

Yahoo! Finance

Yahoo! Finance Historical data for XRP

CoinMarketCap Historical data for XRP

About the author

The article was written in January 2024 by Snehasish CHINARA (ESSEC Business School, Grande Ecole Program – Master in Management, 2022-2024).