Real-time Risk Metrics for Programmatic Stablecoin Crypto Asset-Liability Management (CALM)

Marcel Bluhm, Adrian Cachinero Vasiljevi\'c, S\'ebastien Derivaux and S{\o}ren Terp H{\o}rl\"uck Jessen
Additional contact information
Marcel Bluhm: The Block
Adrian Cachinero Vasiljevi\'c: Steakhouse Financial Limited
S\'ebastien Derivaux: Steakhouse Financial Limited
S{\o}ren Terp H{\o}rl\"uck Jessen: Balloonist ApS

Papers from arXiv.org

Abstract: Stablecoins have turned out to be the "killer" use case of the growing digital asset space. However, risk management frameworks, including regulatory ones, have been largely absent. In this paper, we address the critical question of measuring and managing risk in stablecoin protocols, which operate on public blockchain infrastructure. The on-chain environment makes it possible to monitor risk and automate its management via transparent smart-contracts in real-time. We propose two risk metrics covering capitalization and liquidity of stablecoin protocols. We then explore in a case-study type analysis how our risk management framework can be applied to DAI, the biggest decentralized stablecoin by market capitalisation to-date, governed by MakerDAO. Based on our findings, we recommend that the protocol explores implementing automatic capital buffer adjustments and dynamic maturity gap matching. Our analysis demonstrates the practical benefits for scalable (prudential) risk management stemming from real-time availability of high-quality, granular, tamper-resistant on-chain data in the digital asset space. We name this approach Crypto Asset-Liability Management (CALM).

Date: 2024-01
New Economics Papers: this item is included in nep-pay and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2401.13399 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2401.13399

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().