The work provides a foundational theory for stablecoins through a risk-based functional characterization of their economic structure. It matches economic models to custodial systems and characterizes risks in non-custodial stablecoins.
This informs the understanding of risks associated with stablecoin designs.
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.
Ariah Klages‐Mundt et al. (2020). Stablecoins 2.0.
@techreport{mundt2020stablecoins,
title = {Stablecoins 2.0},
author = {Ariah Klages‐Mundt and Dominik Harz and Lewis Gudgeon and Junyou Liu and Andreea Minca},
year = {2020},
doi = {10.1145/3419614.3423261},
url = {https://doi.org/10.1145/3419614.3423261},
note = {Indexed by Stablecoin Beat},
}