By analyzing cryptocurrency market responses to key protocol and market-moving events, augmented by nonlinear volatility models, we identify distinct, chain-specific flight-to-safety behaviors. Our results show that USDT acts as a primary liquidity lifeline for Ethereum holders during stress, particularly among retail investors, whereas its role for Bitcoin holders is more muted and stabilizing. Notably, we find stronger flight-to-safety evidence in Wrapped Bitcoin (Ethereum-based) than in native Bitcoin, highlighting that USDT’s function is network dependent. These findings imply that effective regulatory frameworks must be differentiated, accounting for chain-specific liquidity, investor composition, and risk dynamics, as a uniform approach would likely be systematically miscalibrated.

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