Introduction
Global adoption of digital assets has introduced new layers of complexity to cross-border capital flows. Bitcoin, Ether, and stablecoins represent the backbone of both retail and institutional activity in crypto markets. Their movement across jurisdictions raises important questions about monetary sovereignty, regulatory arbitrage, and systemic risk.
The BIS Working Paper “DeFiying Gravity?” provides one of the most detailed empirical studies to date on international digital asset flows. Using granular transaction data, the study maps how these assets move across borders, where liquidity pools are concentrated, and what factors explain regional differences. The results shed light on the extent to which digital assets may be “defying gravity”—detached from traditional capital flow constraints—or remain influenced by macroeconomic and regulatory fundamentals.
Methodology
The BIS team analyzed blockchain transaction data combined with off-chain exchange information to reconstruct cross-border flows of three major categories:
- Bitcoin (BTC): the original decentralized asset, serving as a benchmark for digital capital movement.
- Ether (ETH): a programmable platform asset central to DeFi and tokenization.
- Stablecoins (primarily USDT, USDC, DAI): dollar-pegged instruments widely used for settlement, collateral, and remittances.
The paper applies econometric models similar to those used in traditional international finance (gravity models) to test whether digital asset flows still obey economic “gravity”—influenced by GDP size, trade ties, distance, and regulation—or whether they move freely beyond such constraints.
Key Findings
1. Stablecoins dominate cross-border flows
While Bitcoin and Ether continue to serve as reference assets, stablecoins now account for the majority of cross-border activity. Their dollar peg makes them a natural vehicle for settlements, arbitrage, and liquidity provision across exchanges.
2. Geography still matters
Despite the borderless nature of blockchain, flows remain heavily concentrated:
- North America and Asia dominate trading volumes.
- Offshore financial centers and jurisdictions with lighter regulation play a disproportionate role as intermediaries.
- Regional clustering is evident, with liquidity often circulating within continental blocks.
3. Regulation shapes patterns
The report finds a clear correlation between regulatory stance and cross-border flows:
- Jurisdictions with stricter controls on exchanges and stablecoins see reduced inbound flows.
- Regulatory clarity, rather than leniency alone, is associated with healthier, more transparent liquidity.
4. Persistence of U.S. dollar gravity
Stablecoins, though decentralized in issuance, reinforce dollar dominance in international transactions. Even when flows bypass banks, they remain anchored to U.S. monetary influence through their dollar peg.
Implications for Policy
The working paper emphasizes that while digital assets reduce frictions, they do not eliminate the influence of traditional macroeconomic fundamentals. Several policy implications follow:
Financial stability monitoring
Central banks need to track crypto flows with the same granularity as traditional capital flows. Abrupt shifts could transmit shocks across borders more rapidly than in legacy systems.
Regulatory coordination
The uneven global regulatory landscape creates incentives for “jurisdiction shopping.” Stronger cross-border cooperation is required to prevent migration of risky activities to weakly supervised hubs.
Implications for capital controls
For emerging markets, the use of stablecoins for remittances and informal capital movement may undermine existing controls. Policymakers must evaluate whether traditional tools remain effective in a tokenized environment.
Reinforcement of dollar dominance
Far from displacing traditional currencies, stablecoins extend the reach of the dollar system into decentralized networks. This raises questions about monetary sovereignty for jurisdictions heavily exposed to dollarized stablecoin flows.
Institutional Relevance
For financial institutions, the findings carry direct significance:
- Liquidity providers: Understanding cross-border patterns is essential for risk management and arbitrage strategies.
- Banks and payment firms: Stablecoin rails could complement or compete with correspondent banking, especially in cross-border remittances.
- Asset managers: Exposure to tokenized assets must account for the jurisdictional concentration of liquidity and regulatory risk.
- Central banks: Integration of stablecoin monitoring into macroprudential dashboards will be critical to anticipate vulnerabilities.
Comparative Perspectives
The BIS situates its findings in a broader regulatory context:
- United States: Stablecoin legislation (GENIUS Act) will likely reinforce the role of U.S.-supervised issuers, further embedding dollar dominance.
- European Union: MiCA provides a framework that could attract flows toward euro-denominated stablecoins, though volumes remain limited compared to dollar tokens.
- Asia: Singapore and Hong Kong are competing to become regional hubs for tokenized asset flows, leveraging robust regulatory clarity.
- Emerging Markets: Use cases center on remittances and dollar substitution, raising questions of financial inclusion versus macro stability risks.
Conclusion
The BIS report concludes that while digital assets reduce some frictions of cross-border transfers, they have not entirely “defied gravity.” Geography, regulation, and macro fundamentals continue to shape flows. Stablecoins, in particular, are reinforcing rather than disrupting the global dominance of the U.S. dollar.
For policymakers, this means digital assets should be integrated into existing frameworks for capital flow monitoring, with enhanced international cooperation to address regulatory arbitrage. For institutions, it signals both opportunity and risk: stablecoins offer efficient settlement mechanisms but remain embedded in systemic dynamics that require careful oversight.
Reference:
Bank for International Settlements. (2025). DeFiying gravity? An empirical analysis of cross-border Bitcoin, Ether and stablecoin flows. BIS Working Paper No. 1265. Available here