Stablecoins 2.0: Economic Foundations and Risk-based Models

Ariah Klages-Mundt, Dominik Harz, Lewis Gudgeon, Jun-You Liu and Andreea Minca

Papers from arXiv.org

Abstract: Stablecoins are one of the most widely capitalized type of cryptocurrency. However, their risks vary significantly according to their design and are often poorly understood. We seek to provide a sound foundation for stablecoin theory, with a risk-based functional characterization of the economic structure of stablecoins. First, we match existing economic models to the disparate set of custodial systems. Next, we characterize the unique risks that emerge in non-custodial stablecoins and develop a model framework that unifies existing models from economics and computer science. We further discuss how this modeling framework is applicable to a wide array of cryptoeconomic systems, including cross-chain protocols, collateralized lending, and decentralized exchanges. These unique risks yield unanswered research questions that will form the crux of research in decentralized finance going forward.

Date: 2020-06, Revised 2020-10
New Economics Papers: this item is included in nep-pay
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