Environmental Efficiency and Systemic Risk in Digital Finance: A TVP-VAR Connectedness Analysis of Green Cryptocurrencies and Sustainable Assets

Abstract

The rapid expansion of sustainable finance and digital assets has created a new frontier where environmental performance and financial systemic risk intersect. This study explores the dynamic spillover structure between sustainable financial instruments (green bonds and green equity indices) and cryptocurrencies classified according to environmental efficiency into ”green” (Proof-of-Stake) and ”conventional” (Proof-of-Work) digital assets. Employing a Time-Varying Parameter Vector Autoregression (TVP-VAR) connectedness framework with daily data from 2022–2024, we quantify evolving return spillovers and systemic interdependencies. Results indicate a pronounced surge in total connectedness in early 2023, followed by stabilization into a new equilibrium regime. Green cryptocurrencies display stronger integration with sustainable financial instruments, while conventional cryptocurrencies function as primary systemic shock transmitters during stress episodes. These findings demonstrate that environmental efficiency has become a financially material characteristic shaping digital asset behavior, linking blockchain technological design to ESG-oriented financial dynamics.