Korbit Research Center Presents Stability Assessment Factors for Stablecoins

[Asia Economy Reporter Lee Jung-yoon] On the 9th, Kobit Research Center, under the domestic cryptocurrency exchange Kobit, announced the publication of a report titled "Stablecoin Stability Check After the Terra Incident," which analyzed the factors determining the stability of stablecoins designed to be pegged to fiat currency.

Through this report, Kobit Research Center analyzed the growth and directional changes in the stablecoin market as well as the factors to consider when assessing the stability of stablecoins.

Researcher Jung Jun-young of Kobit Research Center analyzed that last month's TerraUSD (UST) de-pegging incident suggests that when the demand for stablecoins is limited or a large amount of funds rapidly exit, the algorithm may fail to respond appropriately, causing internal and external shocks to create a vicious cycle, despite the quantitative growth of stablecoins.

He also introduced the concept of the "Stablecoin Trilemma," defined by cryptocurrency investment firm Multicoin Capital. This concept states that the three goals of stablecoins?price stability, capital efficiency, and decentralization?are conflicting and cannot be achieved simultaneously. Each stablecoin differs depending on which element it prioritizes; while UST had particular advantages in capital efficiency, the Terra incident highlighted the value of price stability.

Furthermore, Researcher Jung introduced four factors for assessing stablecoin stability. First is whether the "pegging maintenance principle is safe from external shocks." Algorithmic stablecoins without collateral are analyzed to have a recursive structure where cause and effect influence each other, making them immediately vulnerable to shocks.

The next factor is "the collateral ratio and soundness of assets in asset-backed stablecoins." For the same type of asset, a higher collateral ratio relative to issuance scale increases capital stability. Additionally, if the liquidity and convertibility of collateral assets are low or if there is a possibility that the actual recovery value is impaired compared to the book value, questions about soundness may arise.

The third factor is whether "the stablecoin has sufficient utility and is not excessively concentrated on a specific use." If stablecoins can be used in many areas such as payments, remittances, and deposits, the likelihood of sudden withdrawals decreases. However, as seen in the case of the Anchor Protocol, high concentration on a specific use can threaten stability due to demand fluctuations for that use. Concerns have been continuously raised about Terraform Labs, which issued Luna Classic and UST, regarding the decentralized DeFi service Anchor Protocol that utilizes UST. Terraform Labs promised an industry-leading annual interest rate of 19-20% if UST is entrusted to the blockchain.

The final factor is whether the stablecoin "has a stable track record." A long history of maintaining stability increases user trust and helps defend demand amid market fluctuations. In fact, stablecoins that have maintained stability so far have shown reduced price volatility over time.

Kobit Research Center concluded that the key to stablecoins lies in whether each pegging maintenance mechanism can operate without problems. They also pointed out that stablecoin stability is not naturally obtained and requires continuous development and improvement.

This content was produced with the assistance of AI translation services.