Decentralized Governance of Stablecoins with Closed Form Valuation
General Economics
2023-03-31 v3 Cryptography and Security
Economics
Abstract
We model incentive security in non-custodial stablecoins and derive conditions for participation in a stablecoin system across risk absorbers (vaults/CDPs) and holders of governance tokens. We apply option pricing theory to derive closed form solutions to the stakeholders' problems, and to value their positions within the capital structure of the stablecoin. We derive the optimal interest rate that is incentive compatible, as well as conditions for the existence of equilibria without governance attacks, and discuss implications for designing secure protocols.
Keywords
Cite
@article{arxiv.2109.08939,
title = {Decentralized Governance of Stablecoins with Closed Form Valuation},
author = {Lucy Huo and Ariah Klages-Mundt and Andreea Minca and Frederik Christian Münter and Mads Rude Wind},
journal= {arXiv preprint arXiv:2109.08939},
year = {2023}
}