The fallacy of uncollateralised stablecoins

Stablecoins are cryptocurrencies that are pegged to some underlying, such as the US dollar. In other words, one unit of a stablecoin pegged to the dollar should always be worth one dollar.

Our main conclusions are that uncollateralised stablecoins are problematic

(i) economically, as they will struggle to maintain their purported value; and, depending on the design,

(ii) in that some parties to such a system may have profited substantially at the expense of others should it collapse.