Stablecoins : Does Design Affect Stability?

Stablecoins recently emerged as a solution to mitigate cryptocurrency’s volatility while preserving their advantages. Nowadays, various types of stablecoins with different protocol designs coexist. Whilst “custodial” stablecoins are secured by fiat money locked in funds, “non-custodial" stablecoins rely on cryptocurrency collateralization and/or algorithms to stabilize their value. The objective of the article is to assess if their theoretical design conditions their price dynamics by performing a community detection analysis. Our clusters of stablecoins are broadly in line with the protocol types, with several noticeable exceptions. Some non-custodial stablecoins, including algorithmic ones, display similar dynamics than successful well-established custodial based tokens