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

How to Cite?: Ayush Gupta, Girik Gupta, "Stablecoin Economics and Speculative Attacks: A Game-Theoretic Approach", Volume 14 Issue 2, February 2025, International Journal of Science and Research (IJSR), Pages: 932-934, https://www.ijsr.net/getabstract.php?paperid=SR25215203310, DOI: https://dx.doi.org/10.21275/SR25215203310