Computer Science Abstractions to Help Reason About Decentralized Stablecoin Design

Computer science uses abstractions as a tool for reasoning. It is no surprise that computer science might have something valuable to lend to the world of decentralized stablecoin design, as it is a "computing" problem. In this paper, we examine the possibility of a decentralized and capita...

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Bibliographic Details
Published in:IEEE access 2023, Vol.11, p.103201-103213
Main Authors: Charoenwong, Ben, Kirby, Robert M., Reiter, Jonathan
Format: Article
Language:English
Subjects:
algorithmic stablecoin
Algorithms
Computational modeling
Computer science
Cryptocurrency
Currencies
DeFi
Digital currencies
Economics
Financial management
financial stability
Monopoly
Smart contracts
Stability analysis
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Summary:Computer science uses abstractions as a tool for reasoning. It is no surprise that computer science might have something valuable to lend to the world of decentralized stablecoin design, as it is a "computing" problem. In this paper, we examine the possibility of a decentralized and capital-efficient stablecoin using smart contracts that algorithmically trade to maintain stability. By exploiting traditional abstractions from computer science, we show that a capital-efficient algorithmic stablecoin cannot be provably stable. Additionally, we provide a formal exposition of the workings of Central Bank Digital Currencies, connecting this framing to the space of possible stablecoin designs. We then discuss several outstanding conjectures from both academics and practitioners and finally highlight the regulatory similarities between money-market funds and working stablecoins. Our work builds upon the current and growing interplay between the realms of engineering and financial services, and it also demonstrates how ways of thinking as a computer scientist can aid practitioners. We believe this research is vital for understanding and developing the future of financial technology.
ISSN:2169-3536
2169-3536
DOI:10.1109/ACCESS.2023.3317891