Managing stablecoins : optimal strategies, regulation, and transaction data as productive capital

Ye Li (The Ohio State University), Simon Mayer (Erasmus University Rotterdam)

Stablecoins rise to meet the demand for safe assets in decentralized finance. Stablecoin issuers transform risky reserve assets into tokens of stable values, deploying a variety of tactics. To address the questions on the viability of stablecoins, regulations, and the initiatives led by large platforms, we develop a dynamic model of optimal stablecoin management and characterize an instability trap. The system is bimodal: stability can last for a long time, but once stablecoins break the buck following negative shocks, volatility persists. Debasement triggers a vicious cycle but is unavoidable as it allows efficient risk sharing between the issuer and stablecoin users

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Year of publication:	[2020]
Authors:	Li, Ye ; Mayer, Simon
Publisher:	[Columbus, Ohio] : The Ohio State University, Fisher College of Business, Charles A. Dice Center for Research in Financial Economics
Subject:	stablecoin \| reserve management \| stablecoin regulation \| debasement \| big data \| payment system \| collateral \| open market operations \| secondary units \| governance token \| Zahlungsverkehr \| Payment transactions \| Regulierung \| Regulation \| Virtuelle Währung \| Virtual currency \| Offenmarktpolitik \| Open market operations \| Big Data \| Big data \| Finanzmarkt \| Financial market