Abstract: Stablecoins have mushroomed with a year of spectacular growth and spectacular crises, from Black Thursday to the collapse of many algorithmic stablecoins. I will present my work on a sound foundation for stablecoin theory, including a risk-based characterization of the various stablecoin economic structures and models for incentive security and price (in)stability. In doing so, we soundly explain stablecoin crises and enable new design improvements. On the security side, we characterize governance- and miner- extractable value problems and attack manipulation surfaces in stablecoin systems. A variant of these attacks later occurred during Black Thursday, taking the form of mempool manipulation to clear Dai liquidations at near zero prices, costing $8m. On the financial side, we characterize stable and unstable regimes for stablecoins as well as the effect of deleveraging spirals that cause liquidity problems and collateral drawdown in crises. These effects later contributed to the Black Thursday crisis in Dai. And variations on these effects describe the recent problems in algorithmic stablecoins.
Speaker Bio: Ariah Klages-Mundt is an Applied Math PhD student at Cornell University. His research is at the intersection of computer science and economics on the design of decentralized finance (DeFi) protocols and economic networks. He brings prior experience working in the financial technology sector. He is also developing the Gyroscope stablecoin.
About IC3: The Initiative for CryptoCurrencies and Contracts (IC3) is a blockchain research initiative of faculty members at Carnegie Mellon University, Cornell University, Cornell Tech, EPFL, ETH Zurich, UC Berkeley, University College London, UIUC and the Technion. It's based at the Jacobs Technion-Cornell Institute at Cornell Tech in NYC.