Potter, Yujin;
Pongmala, Kornrapat;
Qin, Kaihua;
Klages-Mundt, Ariah;
Jovanovic, Philipp;
Parlour, Christine;
Gervais, Arthur;
(2024)
What Drives the (In)stability of a Stablecoin?
In:
2024 IEEE International Conference on Blockchain and Cryptocurrency (ICBC).
(pp. pp. 316-324).
IEEE: Dublin, Ireland.
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Abstract
In May 2022, an apparent speculative attack, followed by market panic, led to the precipitous downfall of UST, one of the most popular stablecoins at that time. However, UST is not the only stablecoin to have been depegged in the past. Designing resilient and long-term stable coins, therefore, appears to present a hard challenge. To further scrutinize existing stablecoin designs and ultimately lead to more robust systems, we need to understand where volatility emerges. Our work provides a game-theoretical model aiming to help identify why stablecoins suffer from a depeg. This game-theoretical model reveals that stablecoins have different price equilibria depending on the coin’s architecture and mechanism to minimize volatility. Moreover, our theory is supported by extensive empirical data, spanning 1 year. To that end, we collect daily prices for 22 stablecoins and on-chain data from five blockchains including the Ethereum and the Terra blockchain.
| Type: | Proceedings paper |
|---|---|
| Title: | What Drives the (In)stability of a Stablecoin? |
| Event: | 2024 IEEE International Conference on Blockchain and Cryptocurrency (ICBC) |
| Dates: | 27 May 2024 - 31 May 2024 |
| ISBN-13: | 979-8-3503-1674-2 |
| Open access status: | An open access version is available from UCL Discovery |
| DOI: | 10.1109/ICBC59979.2024.10634419 |
| Publisher version: | http://dx.doi.org/10.1109/icbc59979.2024.10634419 |
| Language: | English |
| Additional information: | This version is the author accepted manuscript. For information on re-use, please refer to the publisher’s terms and conditions. |
| Keywords: | Stablecoin; Price Instability; Financial Risks |
| UCL classification: | UCL UCL > Provost and Vice Provost Offices > UCL BEAMS UCL > Provost and Vice Provost Offices > UCL BEAMS > Faculty of Engineering Science > Dept of Computer Science |
| URI: | https://discovery.ucl.ac.uk/id/eprint/10198848 |
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