Demystifying Stablecoins

Abstract

Self-sovereign stablecoins are interesting and probably here to stay; however, they face numerous regulatory hurdles from banking, financial tracking, and securities laws. For stablecoins backed by a governmental currency, the ultimate expression would be a CBDC. Since paper currency has been in steady decline (and disproportionately for legitimate transactions), a CBDC could reintroduce cash with technological advantages and efficient settlement while minimizing user fees.

Cryptocurrency

“…To make the term more useful in public discourse, cryptocurrency should be coupled with specifying classifications from economic (e.g., Bullmann et al, 2019;Pernice et al, 2019;Moin et al, 2020;Clark et al, 2020), governance (e.g., Zi- olkowski Beck et al, 2018;Hacker, 2019) or technological (e.g., Cachin and Vukoli, 2017;Peters et al, 2016) points of view.…”

“…They are thus no longer 'blank' empty signifiers, and contain some reference point that is easier to estimate and communicate. There are very different types of stablecoins, and recently several frameworks have tried to unify and abstract existing stabilisation techniques (e.g., Bullmann et al, 2019;Pernice et al, 2019;Moin et al, 2020;Sidorenko, 2019;Clark et al, 2020). A national currency can be 'tokenized' by issuing a digital promise for it on a blockchain system, and such tokenised funds might indeed be categorised as a "new form of electronic money" (Blandin et al, 2019) falling under the respective regulations for e-money, anti money laundering and counter terrorist financing regulations.…”

Cost-Effective Data Feeds to Blockchains via Workload-Adaptive Data Replication

“…Price stability is the key requirement for real-world adoption of today's cryptocurrencies in realistic applications (e.g., loans, derivatives, and prediction markets). Recently, there is an explosion of stablecoins proposed (e.g., There are dierent approaches to realize price stability [36]: A stablecoin can be either directly backed by a stable asset (e.g., USD or gold) or indirectly backed via yet another cryptocurrency. The latter design, named indirectlybacked stablecoin, has the benet of not relying on a trusted third-party vault o-chain to keep collateral and is adopted in popular stablecoins such as DAI [23] which is indirectly backed by Ether.…”

“…To make sure SCoin is pegged and redeemable to one USD, the smart contract needs to read the Ether price at the time of issuance and redemption, as well as requiring over-collateralization and locking up remaining Ether. This implements a minimalist MakerDAO based on the working example in [36].…”

“…The o-chain party trusted by an indirectly-backed stablecoin performs a much simpler task than that by the directly-backed stablecoin. The former is a price feed, while the latter is a full-edged vault storing the collateralized asset, subject to the public auditing[36,53] 3. …”