Intertemporal Pricing of Time-Bound Stablecoins: Measuring and Controlling the Liquidity-of-Time Premium

TL;DR

This paper addresses the problem of liquidity gaps created by non-simultaneous trading across time zones by introducing time-bound stablecoins and the Liquidity-of-Time Premium (TLP). It develops a no-arbitrage pricing band that bounds the stablecoin price via the underlying asset’s close and open dynamics, and proposes a dynamic LTV policy to keep TLP within a target range, evaluated through theory and agent-based simulations. The key contributions include a formal definition of TLP, closed-form relationships linking TLP to put-option value, a tractable control mechanism, empirical proxies for measuring TLP in real markets, and design guidance for the SSS protocol (vaults, oracles, liquidations). The findings suggest TLP grows with closure length and volatility but can be contained with adaptive collateralization, offering a mechanism to enable continuous global liquidity and inform future research on intertemporal asset pricing and DeFi infrastructure.

Abstract

Time-bound stablecoins are DeFi assets that temporarily tokenize traditional securities during market off-hours, enabling continuous cross-market liquidity. We introduce the Liquidity-of-Time Premium (TLP): the extra return or cost of providing liquidity when the primary market is closed. We build a no-arbitrage pricing model that yields a band for fair values over different expiries, and a dynamic risk-control mechanism that adjusts loan-to-value (LTV) ratios in real time to keep TLP within a target range. Our analysis blends financial engineering (no-arbitrage conditions, option-style pricing) with empirical finance (event studies on cross-listed stocks and futures) to measure TLP under time-zone frictions. We define TLP formally, derive closed-form expressions for its term structure under idealized assumptions, and simulate scenarios that vary volatility and collateralization. We then propose an LTV policy that raises or lowers collateral to expand or curtail time-bound stablecoin supply, analogous to a central bank adjusting rates to defend a peg. We outline empirical proxies for TLP, including ADR premiums, overseas index futures versus cash index divergence, and pre-market versus official close gaps. Results show that TLP grows with closure length and volatility, yet can be contained by adaptive LTV. We provide backtests and figures (term-structure curves, capital-efficiency versus tail-risk trade-offs, time-liquidity heatmaps) and discuss protocol design (vault structure, closing-price oracles, on-chain auction liquidations). The findings position time-bound stablecoins as a tool to reduce temporal market inefficiencies and inform future research and deployment.

Figures (5)

• Figure 1: Conceptual time–liquidity heatmap across regions. Dark bands indicate open sessions; arrows indicate SSS bridging during closures.
• Figure 2: Term structure of the Liquidity-of-Time Premium (TLP) across 1–3 day closures for assets with different daily volatility.
• Figure 3: Capital efficiency vs. tail risk as LTV increases. Left axis (capital efficiency): ratio of minted stablecoin notional to collateral market value net of safety buffer; Right axis (default probability): $\Pr(S_o < (1-\text{LTV})S_c)$ under mixture-Gaussian overnight jump model in Sec.
• Figure 4: Representative stablecoin price time series during a volatile week.
• Figure 5: Histogram of nightly TLP values over 2018–2023 (N=1,250 nights; 40 bins). Mean/Median: 0.23%/0.18%; 95th/99th percentiles: 0.9%/1.8%.