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CBER Webinar: Quentin Vandeweyer (U Chicago), Hosted by Zhiguo He (U Chicago)
Speaker: Quentin Vandeweyer (University of Chicago)

Host: Zhiguo He (University of Chicago).

Topic: Can Stablecoins be Stable?

Abstract: This paper proposes a framework to analyze the stability of stablecoins - cryptocurrencies designed to peg their price to a currency. We study the problem of a monopolist platform earning seignorage revenues from issuing stablecoins and characterize equilibrium stablecoin issuance-redemption and pegging dynamics, allowing for various degrees of commitment over the system's key policy decisions. Because of two-way feedback between the value of the stablecoin and its ability to peg the currency, uncollateralized (pure algorithmic) platforms always admit zero price equilibrium. However, with full commitment, an equilibrium in which the platform maintains the peg also exists. This equilibrium is stable locally but vulnerable to large demand jump shocks. Without a commitment technology on supply adjustments, a stable solution may still exist if the platform commits to paying an interest rate on stablecoins contingent on its implicit leverage. Collateral and decentralizing stablecoin issuance help stabilize the peg.

Sep 1, 2022 11:00 AM in Eastern Time (US and Canada)

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