Webinar Series
Money Creation in Decentralized Finance: A Dynamic Model of Stablecoin and Crypto Shadow Banking
Stablecoins are at the center of debate surrounding decentralized finance. The authors develop a dynamic model to analyze the instability mechanism of stablecoins, the complex incentives of stablecoin issuers, and regulatory proposals. The model rationalizes a variety of stablecoin management strategies commonly observed in practice and characterizes an instability trap: Stability can last for a long time, but once debasement happens following negative shocks to the issuer’s reserves, price volatility persists. Capital requirement improves price stability but still fails to eliminate debasement. Restricting the riskiness of reserve assets can surprisingly destabilize price. Finally, the authors show that data privacy regulation has an unintended benefit of reducing the price volatility of stablecoins issued by data-driven platforms (e.g., Facebook).
2022
Session Chair: Daniel XU
Professor of Economics, Duke University
Speakers
Session Format
Each session lasts for 1 hour 10 minutes (25 minutes for the author, 25 minutes for the discussion and 20 minutes for participants' Q&A). Sessions will be recorded and posted on ABFER's web, except in cases where speakers or discussants request us not to.
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