In Search for Stability in Crypto-Assets: Are Stablecoins the Solution?

TLDR

Stablecoins claim to stabilise the value of major currencies in the volatile crypto‑asset market. The paper aims to describe the complex functioning of various stablecoins and propose a taxonomy of stablecoin initiatives. It relies on a novel classification framework based on issuer accountability, decentralised responsibilities, and the underlying asset that supports the value. The analysis shows a trade‑off between the novelty of the stabilisation mechanism and its ability to maintain stable market value, suggesting that less innovative stablecoins may serve users seeking a stable store of value while the future role of more innovative ones remains uncertain.

Abstract

Stablecoins claim to stabilise the value of major currencies in the volatile crypto-asset market. This paper describes the often complex functioning of different types of stablecoins and proposes a taxonomy of stablecoin initiatives. To this end it relies on a novel framework for their classification, based on the key dimensions that matter for crypto-assets, namely: (i) accountability of issuer, (ii) decentralisation of responsibilities, and (iii) what underpins the value of the asset. The analysis of different types of stablecoins shows a trade-off between the novelty of the stabilisation mechanism used in an initiative (from mirroring the traditional electronic money approach to the alleged introduction of an "algorithmic central bank") and its capacity to maintain a stable market value. While relatively less innovative stablecoins could provide a solution to users seeking a stable store of value, especially if legitimised by the adherence to standards that are typical of payment services, the jury is still out on the potential future role of more innovative stablecoins outside their core user base.