# Monetary Stabilization in Cryptocurrencies - Design Approaches and Open Questions

## TL;DR

This paper systematically analyzes stablecoin projects to develop a taxonomy of cryptocurrency stabilization methods, highlighting current practices, gaps, and potential vulnerabilities in design approaches.

## Contribution

It introduces a comprehensive taxonomy combining computer science and economics insights, based on a survey of 24 stablecoins and classical monetary policy principles.

## Key findings

- Over 91% of projects target 1-to-1 stabilization with external assets.
- 38% of projects combine stabilization techniques that may be vulnerable to attacks.
- The taxonomy reveals gaps and suggests more sustainable stabilization strategies.

## Abstract

The price volatility of cryptocurrencies is often cited as a major hindrance to their wide-scale adoption. Consequently, during the last two years, multiple so called stablecoins have surfaced---cryptocurrencies focused on maintaining stable exchange rates. In this paper, we systematically explore and analyze the stablecoin landscape. Based on a survey of 24 specific stablecoin projects, we go beyond individual coins for extracting general concepts and approaches. We combine our findings with learnings from classical monetary policy, resulting in a comprehensive taxonomy of cryptocurrency stabilization. We use our taxonomy to highlight the current state of development from different perspectives and show blank spots. For instance, while over 91% of projects promote 1-to-1 stabilization targets to external assets, monetary policy literature suggests that the smoothing of short term volatility is often a more sustainable alternative. Our taxonomy bridges computer science and economics, fostering the transfer of expertise. For example, we find that 38% of the reviewed projects use a combination of exchange rate targeting and specific stabilization techniques that can render them vulnerable to speculative economic attacks - an avoidable design flaw.