DeepAI
Log In Sign Up

Understand Volatility of Algorithmic Stablecoin: Modeling, Verification and Empirical Analysis

01/21/2021
by   Wenqi Zhao, et al.
0

An algorithmic stablecoin is a type of cryptocurrency managed by algorithms (i.e., smart contracts) to dynamically minimize the volatility of its price relative to a specific form of asset, e.g., US dollar. As algorithmic stablecoins have been growing rapidly in recent years, they become much more volatile than expected. In this paper, we took a deep dive into the core of algorithmic stablecoins and shared our answer to two fundamental research questions, i.e., Are algorithmic stablecoins volatile by design? Are they volatile in practice? Specifically, we introduced an in-depth study on three popular types of algorithmic stablecoins and developed a modeling framework to formalize their key design protocols. Through formal verification, the framework can identify critical conditions under which stablecoins might become volatile. Furthermore, we performed a systematic empirical analysis on real transaction activities of the Basis Cash stablecoin to relate theoretical possibilities to market observations. Lastly, we highlighted key design decisions for future development of algorithmic stablecoins.

READ FULL TEXT

page 1

page 2

page 3

page 4

08/06/2020

A Survey of Smart Contract Formal Specification and Verification

A smart contract is a computer program which allows users to define and ...
01/04/2019

VeriSolid: Correct-by-Design Smart Contracts for Ethereum

The adoption of blockchain based distributed ledgers is growing fast due...
06/25/2021

CLOAK: A Framework For Development of Confidential Blockchain Smart Contracts

In recent years, as blockchain adoption has been expanding across a wide...
09/26/2018

Towards Safer Smart Contracts: A Survey of Languages and Verification Methods

With a market capitalisation of over USD 205 billion in just under ten y...
11/01/2022

Can maker-taker fees prevent algorithmic cooperation in market making?

In a semi-realistic market simulator, independent reinforcement learning...
03/01/2021

Reducing the Volatility of Cryptocurrencies – A Survey of Stablecoins

In the wake of financial crises, stablecoins are gaining adoption among ...
09/07/2022

The art of algorithmic guessing in

The technique of guessing can be very fruitful when dealing with sequenc...