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
Date Written: May 25, 2019
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
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