(In)Stability for the Blockchain: Deleveraging Spirals and Stablecoin Attacks
(In)Stability for the Blockchain: Deleveraging Spirals and Stablecoin Attacks
We develop a model of stable assets, including non-custodial stablecoins backed by cryptocurrencies.Such stablecoins are popular methods for bootstrapping price stability within public blockchain settings.We derive fundamental results about dynamics and liquidity in stablecoin markets, demonstrate that these markets face deleveraging feedback effects that cause illiquidity during crises and exacerbate …