Inner Workings of Collateral-based Stablecoins and its Implications

While early cryptoassets such as Bitcoin have reputation for high price fluctuation and limited scalability, stablecoin, a new class of cryptographic token, emerged with the purpose of mitigating price volatility. What distinguishes stablecoin from pre-existing cryptocurrency is its use of collateral and use of specific pegging mechanism to mitigate volatility risks. The paper sheds light on the inner workings of stablecoins by analyzing stabilizing property with various aspects of collateral mix as well as pegging mechanism. Specifically, it evaluates initiatives to effectively utilize gold and government bonds as combinatorial collateral