Stablecoins are often touted as crypto's "killer use case" and are constantly in the news. And, for sure, they are a big part of both the Web3 ecosystem and the legal minefields which surround it. But what is the best way to design a stablecoin? How much capital is required?
We touched a bit on these issues about a year ago. And now this author, along with two collaborators, has published an academic paper addressing these very questions in an engineering journal that publishes a lot of what academics call "interdisciplinary research." In this case we are mixing economics and computer science in an area where the math overlaps.
The paper itself should be accessible to anyone who has taken few undergraduate courses in both economics and computer science. The introduction and concluding discussion sections should be more broadly accessible. Here we are going to try to provide an explanation that is understandable by anyone with experience in crypto markets. We are not going to be technically precise but will try to sketch the ideas in a way that helps build intuition for analyzing new products.