Job Market Paper
Crypto Shadow Banking: Stablecoins, Crypto Assets and Capital Controls
Geyue (Grace) Sun · Job Market Paper (2025) · Advisor: Prof. Tomas Williams
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Abstract
Do firms use crypto assets to bypass capital controls? This paper introduces the concept of crypto shadow banking — the use of stablecoins and other digital assets as a substitute channel for cross-border liquidity when official capital-account and equity-market interventions bind. Using large language models, I construct a novel text- and LLM-based crypto-exposure dataset from 4,696 firm-year observations drawn from U.S. public firms’ financial filings (10-K, 8-K, and 20-F) over 2015–2025, identifying hidden digital-asset exposure and stablecoin usage that standard measures miss. Probit and logit estimates show that balance-sheet proxies such as intangible assets and inventories predict crypto-related corporate activity, and that these proxies rise significantly following capital-control and equity-market intervention shocks. I then develop a quantitative model assessing how crypto shadow banking affects the stability of the financial system, with implications for capital-flow management and the regulation of digital assets.
Key Contributions
- New measurement. Builds a large-scale crypto-exposure dataset from corporate disclosures using LLM extraction, turning unstructured filings into firm-level indicators of digital-asset and stablecoin activity.
- New mechanism. Documents “crypto shadow banking” — a substitute channel through which firms obtain cross-border liquidity when capital controls and equity-market interventions tighten.
- Empirical evidence. Shows that intangible-asset and inventory proxies predict crypto activity and respond systematically to capital-control and intervention shocks.
- Policy model. Provides a quantitative framework for evaluating the financial-stability consequences of crypto-based capital-control bypassing.
Keywords
Stablecoins · Crypto Assets · Capital Controls · Shadow Banking · Cross-Border Capital Flows · LLM / Text-Based Measurement · Financial Stability