Stablecoins 2.0: Economic Foundations and Risk-based Models

Proceedings of the 2nd ACM Conference on Advances in Financial Technologies (AFT '20)

21 Pages Posted: 15 Jul 2020 Last revised: 29 Oct 2020

See all articles by Ariah Klages-Mundt

Ariah Klages-Mundt

Cornell University

Dominik Harz

Imperial College London

Lewis Gudgeon

Imperial College London

Jun-You Liu

Cornell University

Andreea Minca

Cornell University

Date Written: June 12, 2020

Abstract

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.

Keywords: stablecoins, non-custodial stablecoins, cryptocurrencies, cryptoeconomics, financial risk, decentralized finance, capital structure

Suggested Citation

Klages-Mundt, Ariah and Harz, Dominik and Gudgeon, Lewis and Liu, Jun-You and Minca, Andreea, Stablecoins 2.0: Economic Foundations and Risk-based Models (June 12, 2020). Proceedings of the 2nd ACM Conference on Advances in Financial Technologies (AFT '20), Available at SSRN: https://ssrn.com/abstract=3633542 or http://dx.doi.org/10.2139/ssrn.3633542

Ariah Klages-Mundt (Contact Author)

Cornell University ( email )

Ithaca, NY 14853
United States

Dominik Harz

Imperial College London

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Lewis Gudgeon

Imperial College London

South Kensington Campus
Exhibition Road
London, Greater London SW7 2AZ
United Kingdom

Jun-You Liu

Cornell University

Ithaca, NY 14853
United States

Andreea Minca

Cornell University ( email )

222 Rhodes Hall
Ithaca, NY NY 14853
United States

HOME PAGE: http://people.orie.cornell.edu/acm299/

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