CVA under Settlement Currency Risk: Stablecoin-Denominated Atomic Settlement

Abstract

We propose a framework for quantifying Credit Valuation Adjustment (CVA) in tokenized securities settled atomically via stablecoins on distributed ledger technology (DLT). We introduce the Settlement Currency Valuation Adjustment (SCVA), a new adjustment term inspired by the Collateral Cost Adjustment (CCA) of Fujii and Takahashi (2013). Using a two-state Markov depeg model, we derive a semi-analytical SCVA expression. Under USDC 2023 parameters, SCVA exceeds the settlement-period CVA reduction by a factor of approximately 3. Cross-stablecoin analysis reveals that the regulatory design of the settlement currency determines whether atomic settlement yields a net CVA benefit.