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Decentralised stablecoins are impossible

Ben Charoenwong and Jonathan Reiter
Ben Charoenwong and Jonathan Reiter 5/25/2022 09:56 PM GMT+08  • 4 min read
Decentralised stablecoins are impossible
We cannot have a decentralised stablecoin with a target fiat price, and we cannot have a capital-efficient stablecoin at all. / Photo: Piotr Cichosz of Unsplash
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The recent collapse of the stablecoin TerraUSD (UST) unveiled a hard truth — decentralised stablecoins are not stable.

At the outset, stablecoins are cryptocurrencies that aim to hold a stable price against some target asset. The most common target is US$1 ($1.37), always redeemable at any point. Proponents of stablecoins assert that stablecoins will reduce transaction costs and make economic activities more efficient. In particular, the most desirable form of stablecoin is trustless and capital-efficient: it depends only on code to maintain the target price with no trusted party and requires less than full backing.

There have been quite a few attempts at decentralised, capital-efficient stablecoins. IRON famously failed a year ago. UST broke its peg by falling to below US$0.20.

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