Vincent Maurin (Stockholm School of Economics), who'll present “Can Stablecoins be Stable” (joint work with Adrien d'Avernas and Quentin Vandeweyer).
Time and venue: February 28, Tuesday, 11.15am – 12.30pm, in QS C-322, RSVP here
Abstract: This paper provides a general framework for analyzing the stability of stablecoins, cryptocurrencies pegged to a traditional currency. We study the problem of a monopolist platform that can earn seigniorage revenues from issuing stablecoins. We characterize stablecoin issuance-redemption and pegging dynamics under various degrees of commitment to policies. Even under full commitment to issuance, the stablecoin peg is vulnerable to large demand shocks. Backing stablecoins with collateral helps to stabilize the platform but does not provide commitment. Decentralization of issuance, combined with collateral, can act as a substitute for commitment.