Monetary Stabilization in Cryptocurrencies - Design Approaches and Open Questions

IGA Pernice, S Henningsen, R Proskalovich, H Elendner and B Scheuermann. "Monetary Stabilization in Cryptocurrencies - Design Approaches and Open Questions" 2019 Crypto Valley Conference on Blockchain Technology (CVCBT). IEEE, 2019.

13 Pages Posted: 14 Jun 2019 Last revised: 10 Sep 2019

See all articles by Ingolf Gunnar Anton Pernice

Ingolf Gunnar Anton Pernice

Weizenbaum Institut for the Networked Society

Sebastian Henningsen

affiliation not provided to SSRN

Roman Proskalovich

affiliation not provided to SSRN

Martin Florian

affiliation not provided to SSRN

Hermann Elendner

Humboldt University of Berlin - School of Business and Economics

Björn Scheuermann

affiliation not provided to SSRN

Date Written: May 25, 2019

Abstract

The price volatility of cryptocurrencies is often cited as a major hindrance to their wide-scale adoption. Consequently, during the last two years, multiple so called stablecoins have surfaced---cryptocurrencies focused on maintaining stable exchange rates. In this paper, we systematically explore and analyze the stablecoin landscape. Based on a survey of 24 specific stablecoin projects, we go beyond individual coins for extracting general concepts and approaches. We combine our findings with learnings from classical monetary policy, resulting in a comprehensive taxonomy of cryptocurrency stabilization. We use our taxonomy to highlight the current state of development from different perspectives and show blank spots. For instance, while over 91% of projects promote 1-to-1 stabilization targets to external assets, monetary policy literature suggests that the smoothing of short term volatility is often a more sustainable alternative. Our taxonomy bridges computer science and economics, fostering the transfer of expertise. For example, we find that 38% of the reviewed projects use a combination of exchange rate targeting and specific stabilization techniques that can render them vulnerable to speculative economic attacks - an avoidable design flaw.

Keywords: stablecoins, cryptocurrencies, volatility

Suggested Citation

Pernice, Ingolf Gunnar Anton and Henningsen, Sebastian and Proskalovich, Roman and Florian, Martin and Elendner, Hermann and Scheuermann, Björn, Monetary Stabilization in Cryptocurrencies - Design Approaches and Open Questions (May 25, 2019). IGA Pernice, S Henningsen, R Proskalovich, H Elendner and B Scheuermann. "Monetary Stabilization in Cryptocurrencies - Design Approaches and Open Questions" 2019 Crypto Valley Conference on Blockchain Technology (CVCBT). IEEE, 2019.. Available at SSRN: https://ssrn.com/abstract=3398372

Ingolf Gunnar Anton Pernice (Contact Author)

Weizenbaum Institut for the Networked Society

Sebastian Henningsen

affiliation not provided to SSRN

Roman Proskalovich

affiliation not provided to SSRN

Martin Florian

affiliation not provided to SSRN

Hermann Elendner

Humboldt University of Berlin - School of Business and Economics ( email )

Spandauer Str. 1
Berlin, D-10099
Germany

Björn Scheuermann

affiliation not provided to SSRN

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