Empirical Measurements on Pricing Oracles and Decentralized Governance for Stablecoins

Abstract

Stable-coins are designed to address the volatility of crypto assets by maintaining a peg to a non-volatile currency such as the US Dollar. Decentralized Stable-coins that maintain their collateral on-chain need a pricing oracle to determine the current market value of the collateral. They also employ a decentralized governance system to make policy changes. In this paper we analyze the inner-workings of the pricing oracle and the decentralized governance mechanism employed in the MakerDao stable-coin, one of the largest and fully developed on-chain stable-coins. We study the accuracy of the pricing oracle over time, as well as disagreements between pricing reports received by MakerDao. We also study the robustness of the decentralized governance system. This work sheds detailed light on the practical operation of a pricing oracle and a decentralized governance mechanism in a large deployed system. We make a number of recommendations for improvements based on our findings.

Keywords: stable-coin, makerdao, decentralization, pricing oracle, oracle attack, governance, empirical