I-Corps: Technical Framework for Testing, Simulating, and Designing Stable Assets

Cornell University, Ithaca NY

Investigators

Abstract

The broader impact/commercial potential of this I-Corps project is enhanced ability to design stable assets and currencies, particularly in the cryptocurrency `stablecoin' space. This project develops testing and design technology that allows a scientific approach to designing new stablecoins and provides tools for agents in decentralized finance to make informed decisions about risk and investment. Both serve to enhance the long-term stability of stablecoins, which could form the basis for a robust decentralized financial system and facilitate economic adoption of cryptocurrencies. The testing and design technology can be used by stablecoin companies and investors in these markets (such as hedge funds). For the former, the technology is useful to perform validation and to make informed design choices. In the latter, the technology can be used to provide trading and value indicators and to measure the risks in different positions. This I-Corps project develops a framework for understanding stable assets that provides the testing, simulation, and design capabilities missing in the decentralized finance space. This requires new financial models involving various algorithmic contracts between anonymous agents in a multi-period system that requires recurring actions without a central bank. Aside from these models, which explain actual stablecoin movements, no existing models apply to this setting. This framework involves substantial market design based on these models. Market design is a new field at the intersection of economics and computer science; it studies how markets can be designed to work well. The complexity of stablecoin protocols presents a substantial computer science component to the research. The models enable market simulation and understanding of market dynamics arising from different protocol design, which allows improved learning in how to design better stablecoins. This award reflects NSF's statutory mission and has been deemed worthy of support through evaluation using the Foundation's intellectual merit and broader impacts review criteria.