Computer Science Abstractions To Help Reason About Decentralized Stablecoin Design

IEEE Access

14 Pages Posted: 14 Sep 2022 Last revised: 3 Oct 2023

See all articles by Ben Charoenwong

Ben Charoenwong

National University of Singapore - Department of Finance; Chicago Global

Robert M. Kirby

University of Utah - School of Computing and Scientific Computing and Imaging Institute

Jonathan Reiter

ChainArgos; Data Finnovation

Date Written: September 2023

Abstract

Computer science as a discipline is known for its penchant for using abstractions as a tool for reasoning. It is no surprise that computer science might have something valuable to lend to the world of decentralized stablecoin design, as it is in fact a “computing" problem. In this paper, we examine the possibility of a decentralized and capital-efficient stablecoin using smart contracts that algorithmically trade to maintain stability and study the potential new functionality that smart contracts enable. By exploiting traditional abstractions from computer science, we show that a capital-efficient algorithmic stablecoin cannot be provably stable. Additionally, we provide a formal exposition of the workings of Central Bank Digital Currencies, connecting this to the space of possible stablecoin designs. We then discuss several outstanding conjectures from both academics and practitioners and finally highlight the regulatory similarities between money-market funds and working stablecoins. Our work builds upon the current and growing interplay between the realms of engineering and financial services, and it also demonstrates how ways of thinking as a computer scientist can aid practitioners. We believe this research is vital for understanding and developing the future of financial technology.

Keywords: smart contracts, algorithmic stablecoin, financial stability, DeFi, cryptocurrency

JEL Classification: G15, F33, G18, G19

Suggested Citation

Charoenwong, Ben and Kirby, Robert M. and Reiter, Jonathan, Computer Science Abstractions To Help Reason About Decentralized Stablecoin Design (September 2023). IEEE Access, Available at SSRN: https://ssrn.com/abstract=4202600 or http://dx.doi.org/10.2139/ssrn.4202600

Ben Charoenwong

National University of Singapore - Department of Finance ( email )

Mochtar Riady Building
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Singapore, 119245
Singapore

HOME PAGE: http://bizfaculty.nus.edu/faculty-profiles/519-ben

Chicago Global ( email )

67 AYER RAJAH CRESCENT, #02-10/17, Singapore
Singapore, 139950
Singapore

HOME PAGE: http://chicago.global

Robert M. Kirby

University of Utah - School of Computing and Scientific Computing and Imaging Institute ( email )

Salt Lake City, UT
United States

Jonathan Reiter (Contact Author)

ChainArgos ( email )

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#01-01
Singapore, 179094
Singapore

Data Finnovation ( email )

1 North Bridge Road #01-01
High Street Center
Singapore, 179094
Singapore

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