Reducing the Volatility of Cryptocurrencies -- A Survey of Stablecoins

TL;DR

This survey reviews various stablecoin types and their mechanisms, analyzing how they mitigate cryptocurrency volatility and discussing future challenges and research directions.

Contribution

It provides a comprehensive classification and comparison of stablecoin approaches, highlighting their tradeoffs and future research needs.

Findings

Stablecoins reduce cryptocurrency volatility effectively.

Different stablecoin types have distinct tradeoffs.

Future challenges include adoption and regulatory issues.

Abstract

In the wake of financial crises, stablecoins are gaining adoption among digital currencies. We discuss how stablecoins help reduce the volatility of cryptocurrencies by surveying different types of stablecoins and their stability mechanisms. We classify different approaches to stablecoins in three main categories i) fiat or asset backed, ii) crypto-collateralized and iii) algorithmic stablecoins, giving examples of concrete projects in each class. We assess the relative tradeoffs between the different approaches. We also discuss challenges associated with the future of stablecoins and their adoption, their adoption and point out future research directions.