Corpus ID: 214794958

While Stability Lasts: A Stochastic Model of Stablecoins

  title={While Stability Lasts: A Stochastic Model of Stablecoins},
  author={Ariah Klages-Mundt and A. Minca},
  journal={arXiv: Trading and Market Microstructure},
  • Ariah Klages-Mundt, A. Minca
  • Published 2020
  • Economics
  • arXiv: Trading and Market Microstructure
  • The `Black Thursday' crisis in cryptocurrency markets demonstrated deleveraging risks in over-collateralized lending and stablecoins. We develop a stochastic model of over-collateralized stablecoins that helps explain such crises. In our model, the stablecoin supply is decided by speculators who optimize the profitability of a leveraged position while incorporating the forward-looking cost of collateral liquidations, which involves the endogenous price of the stablecoin. We formally… CONTINUE READING
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