Decentralized Governance of Stablecoins with Closed Form Valuation

DOI10.1007/978-3-031-18679-0_4MaRDI QIDQ6154564zbMATH OpenOpenAlexFDO

Authors Ariah Klages-Mundt, Andreea Minca

Publication date 15 February 2024

Published in Mathematical Research for Blockchain Economy (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/2109.08939

zbMATH Keywords

capital structuregovernanceDeFistablecoinsclosed form valuation

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Actuarial science and mathematical finance (91G99)

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.

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Cites work

• Stochastic calculus for finance. II: Continuous-time models.
• The pricing of options and corporate liabilities

Cited in

(1)

• Designing stablecoins

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