Stablecoin II: Economics Design for Stablecoin Systems

Trace the rise and collapse of TerraUSD through the anchor protocol, Luna burning, and the fall of a 20% yield model, revealing stability risks and the bank run.

Basis cash, an algorithmic stablecoin, failed amid a mass sell-off. The model minted Basis cash, Basis gas, and Basis bonds to manage demand, but mass selling caused a deadlock.

demonstrates algorithmic price-stability design around $1 with incentives to promote stability; empty set dollar peaked $90 million but collapsed to pennies and a couple of million in market cap.

Explore the rise and collapse of iDEN’s partially collateralized stablecoin in defi contexts. Show how titan-like tokens and base cash, plus whales dumping, shattered the peg and caused hyperinflation.

Fei, an algorithm stablecoin pegged to the USD, launched in April 2021, uses protocol controlled value models; a smart contract bug broke its peg to $0.71.

Assess fiat-backed stablecoins and the factors that enable centralized models to endure market turmoil, focusing on custodians, reserve assets, and direct USD withdrawal, with examples like Tether and USDC.

Explore how crypto-backed stablecoins like Dai use over-collateralized debt positions, enabling minting and withdrawals up to about 67% of collateral value, with a stability fee and liquidation risk.

Investigate algorithmic stablecoins, their resilience in market turmoil, and asset-liability management fundamentals, with examples like Terra USD and Celo-based reserves supporting new issuer creation.

Explain how a stablecoin maintains its price to an external reference using stabilization mechanisms, with fiat or commodity backing, and examples like USD, USDC, DAI, and a gold token.

Compare asset-backed stablecoins backed by assets or crypto, including DAI, with centralized custodians or decentralized smart contracts, and algorithmic stablecoins that stabilize prices without reserves.

Arbitrage based price stabilization uses collateral to mint new stablecoins when price exceeds 1 USD and sells them, and buys below 1 USD to exchange for collateral worth 1 USD.

Examine how algorithmic stabilization uses supply adjustment and rebasing to keep a peg, with high demand prompting new supply and AMP-style rebasing, plus direct incentive models.

Explore asset liability management as a process that times asset cash flows to meet liability demands, while noting how time deposits reduce uncertainty and savings and checking increase uncertainty.

Learn asset liability management in a stablecoin system, focusing on liquidity management, market risk, and default risk, plus currency risk and cash-flow timing mismatches.

Learn asset liability management tools, including liquidity gap analysis, stress testing, scenario analysis, non-performing assets, value at risk, Monte Carlo, and duration gap analysis to manage liquidity and interest-rate risk.

Explore how stablecoins use asset liability management to back tokens with collateral, whether centralized fiat reserves, smart contracts, or DeFi liquidity in algorithmic systems, and how pegs act as IOUs.

Fiat-backed stablecoins rely on a centralized custodian to hold fiat deposits, issuing stablecoins for fiat and redeeming them to maintain the peg via arbitrage.

Explore crypto-backed stablecoins by minting DAI against deposited crypto assets, requiring 150 percent collateral, with liquidation if collateral dips below the safe ratio.

Analyze algorithmic stablecoins backed by a reserve mix to sustain 1 USD peg. Senate, Silver, and Sela protocols adjust supply using Celo, Bitcoin, Ether, and Dai to maintain the peg.

Explore how the collateral reserve backs the stablecoin and helps maintain the peg while defending value in market turmoil. Discover why many stablecoins fail without adequate and high-quality reserves.

Examine the TerraUSD collapse from an asset-liability perspective, noting Luna-backed reserves and a large liability base. Explain how redemptions and Titan collateral losses eroded the reserve and Luna's value.

From an ALM view, stablecoins fail due to insufficient assets backing, volatile reserves with low ratios, or assets highly correlated with liabilities.

Use asset liability management tools to assess exposures in stablecoin design. Apply scenario analysis and stress tests against liquid reserves, collateral, and peg risk to prevent under collateralized outcomes.

Evaluate how stablecoins maintain pegs by examining USDT's performance from May 2021 to April 2022. Tether claims 100% fiat backing with USD-denominated assets, illustrating peg stability during market turmoil.

Explain USDC as a fiat-backed stablecoin issued centrally by the Center consortium founded by Circle and including Coinbase and Bitmain, with 100% collateral in USD and money-market funds.

Explore dai, a crypto collateralized, decentralized stablecoin backed by ether and Ethereum tokens, featuring a forced liquidation mechanism and price movements from 0.978 to 1.01 with 0.14 percent standard deviation.

Examine TerraUSD, an algorithmic stablecoin backed by Luna and Bitcoin and minted through Luna mining, and analyze its May 2021–April 2022 range, including max 1101, min .9457, and 27% volatility.

Explore Celo dollar, an algorithmic stablecoin backed by a reserve of bitcoin, ether, and dai; the reserve value exceeds twice the issued stablecoins, with a 2021–2022 price range of about $0.53–$1.02.

FEI uses protocol-controlled value and direct incentive mechanisms to maintain its peg, redeemable at 1 USD, with issuance via dog eater and liquid USD; peg ranged 0.9372–1.02 and 0.86% deviation.

Explore the Ampl rebasing algorithm that modulates token supply to stabilize wallets, and review its volatility, including a price range of about 1.559 and a 22.2% standard deviation.

Analyze how collateral and reserves underpin the peg for asset-backed and algorithmic stablecoins, noting fiat collateralized stablecoins maintain the peg better than crypto and over-collateralization improves stability.

Explore how two early stablecoins failed quickly, igniting a death spiral caused by systemic risk and hyper inflation, as investors dump assets and the reserve loses value.

Design robust stablecoin systems by backing issuance with high-quality reserves and proper collateralization, ensuring asset quality, liquidity, diverse reserves, and safeguards against hyperinflation and systemic risk.