While stability lasts: A stochastic model of noncustodial stablecoins
While stability lasts: A stochastic model of noncustodial stablecoins
Abstract The “Black Thursday” crisis in cryptocurrency markets demonstrated deleveraging risks in over‐collateralized noncustodial stablecoins. We develop a stochastic model that helps explain deleveraging crises in these over‐collateralized systems. In our model, the stablecoin supply is decided by speculators who optimize the profitability of a leveraged position while incorporating the …