Incentivized Third Party Collateralization for Stablecoins

TL;DR

This paper proposes an alternative architecture for stablecoins that enhances security and functionality by incentivizing third-party collateralization, addressing issues of centralization and high collateral requirements.

Contribution

It introduces a novel stablecoin architecture utilizing incentivized third-party collateralization to improve decentralization and reduce collateralization risks.

Findings

Enhanced stability through incentivized collateralization

Reduced reliance on high collateral requirements

Improved decentralization and security features

Abstract

Stablecoins, which are primarily intended to function as a global reserve of value are insubstantial in their design and present many failure points. The primary mechanism to enable these coins to hold on to a fixed value is by backing them with collateral. Fiat collateralized stablecoins require users to trust a centralized entity, which breaks the total concept of decentralization. Crypto collateralized stablecoins have issues involving high collateral requirements and introduces risks of auto-liquidation. In this paper we aim to propose an alternative architecture for the creation of a functional and secure stablecoin.