Stablecoins in Cryptoeconomics. From Initial Coin Offerings (ICOs) to Central Bank Digital Currencies (CBDCs)

Abstract

In the course of their growth and their more recent crisis, cryptocurrencies suffered from tremendous volatility. Volatility impaired cryptocurrencies’ ability to serve the needs generally associated with currencies, i.e. serve as a store of value as well as a medium of exchange and a unit of account. For this reason, developers and entrepreneurs have explored the opportunity to design “stablecoins”, stable cryptocurrencies, pegged to fiat currencies such as the US dollar and Euro. Stablecoins should in principle be stabilized recurring to collateral (in fiat currency, precious metal, or a basket of cryptocurrencies) or implementing algorithmic “seigniorage” mechanisms.

This Article analyzes stablecoins’ main characteristics, identifies their main categories, and also considers their role in cryptoeconomics and their infrastructural vocation for future developments of the distributed ledger technology. Furthermore, this Article builds on the problems affecting stablecoins, focusing in particular on: the apparent contradiction in implementing a fully decentralized system that is based on a central validator; the endemic opaqueness of auditing operations, in particular the collateral and the algorithmic stabilization mechanisms; conflict of interests emerging from stablecoins’ relationship with cryptoexchanges; and their role in the recent Bitcoin bubble. Finally, this Article highlights the regulatory uncertainty at the level of securities and commodities law that may characterize stablecoins in the same way as initial coin offerings (ICOs), and opens to the possibility that stablecoins may trigger a more active reaction from governments and central bankers in designing and effectively implementing central bank digital currencies (CBDCs). More broadly, this Article aims to highlight the factual interconnections linking ICOs, cryptocurrencies, stablecoins and CBDCs: although these entities belonging to different contexts (securities law and capital formation, payment systems, monetary policy), they are intertwined and are part of the same evolution.

Keywords: Stablecoins; cryptocurrencies; cryptoexchanges; collateral; Central Bank Digital Currencies; IMF; BIS; Initial Coin Offerings; ICOs; ethereum; bitcoin; currencies; facebook; Libra

JEL Classification: K20, K22, K23, K33, L43, L5, O1, O31, O32, O33, O38