Stablecoin Economics and Speculative Attacks: A Game-Theoretic Approach

Ayush Gupta, Girik Gupta

Abstract: Stablecoins serve as the backbone of many decentralized finance (DeFi) ecosystems, offering price stability in an otherwise volatile cryptocurrency market. This paper analyzes the economic design of stablecoins- both algorithmic (un- or under-collateralized) and asset-backed (collateralized)- and employs game-theoretic models to examine their susceptibility to speculative attacks. We present mathematical frameworks illustrating peg- maintenance mechanisms, discuss equilibrium conditions for stable pegging, and use real-world examples of USDC, DAI, and Terra-Luna to highlight the key success and failure factors. Policy and protocol design recommendations are provided to help mitigate risks of de-pegging and bank-run dynamics.

Keywords: Stablecoins, Algorithmic Stablecoins, Collater- alization, Speculative Attack, Game Theory, DeFi