Monetary Stabilisation In Cryptocurrencies

Monetary stabilisation in cryptocurrencies

Monetary Stabilization in Cryptocurrencies - Design Approaches and Open Questions

IGA Pernice, S Henningsen, R Proskalovich, H Elendner and B Scheuermann.

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"Monetary Stabilization in Cryptocurrencies - Design Approaches and Open Questions" 2019 Crypto Valley Conference on Blockchain Technology (CVCBT). IEEE, 2019.

13 PagesPosted: 14 Jun 2019Last revised: 10 Sep 2019

Date Written: May 25, 2019

Abstract

The price volatility of cryptocurrencies is often cited as a major hindrance to their wide-scale adoption.

Consequently, during the last two years, multiple so called stablecoins have surfaced---cryptocurrencies focused on maintaining stable exchange rates.

Monetary stabilisation in cryptocurrencies

In this paper, we systematically explore and analyze the stablecoin landscape. Based on a survey of 24 specific stablecoin projects, we go beyond individual coins for extracting general concepts and approaches. We combine our findings with learnings from classical monetary policy, resulting in a comprehensive taxonomy of cryptocurrency stabilization.

Monetary stabilisation in cryptocurrencies

We use our taxonomy to highlight the current state of development from different perspectives and show blank spots.

For instance, while over 91% of projects promote 1-to-1 stabilization targets to external assets, monetary policy literature suggests that the smoothing of short term volatility is often a more sustainable alternative. Our taxonomy bridges computer science and economics, fostering the transfer of expertise.

Monetary stabilisation in cryptocurrencies

For example, we find that 38% of the reviewed projects use a combination of exchange rate targeting and specific stabilization techniques that can render them vulnerable to speculative economic attacks - an avoidable design flaw.

Keywords: stablecoins, cryptocurrencies, volatility

Suggested Citation:Suggested Citation

Pernice, Ingolf Gunnar Anton and Henningsen, Sebastian and Proskalovich, Roman and Florian, Martin and Elendner, Hermann and Scheuermann, Björn, Monetary Stabilization in Cryptocurrencies - Design Approaches and Open Questions (May 25, 2019).

IGA Pernice, S Henningsen, R Proskalovich, H Elendner and B Scheuermann.

Monetary stabilisation in cryptocurrencies

"Monetary Stabilization in Cryptocurrencies - Design Approaches and Open Questions" 2019 Crypto Valley Conference on Blockchain Technology (CVCBT). IEEE, 2019..

Monetary stabilisation in cryptocurrencies

Available at SSRN: https://ssrn.com/abstract=3398372