Managing Stablecoins: Optimal Strategies, Regulation, and Transaction Data as Productive Capital

In a dynamic model of stablecoins, we show that even with over-collateralization, a pledge of one-to-one convertibility to a reference currency is not sustainable in a stochastic environment. The distribution of states is bimodal--a fixed exchange rate can persist, but debasement happens with a positive probability and recovery is slow. When negative shocks drain the reserves that back stablecoins, debasement allows the issuer to share risk with users. Collateral requirements cannot eliminate debasement, because risk sharing is ex-post efficient under any threat of costly liquidation, whether it is due to reserve depletion or violation of regulation. Optimal stablecoin management requires a combination of strategies commonly observed in practice, such as open market operations, transaction fees or subsidies, re-pegging, and issuance and repurchase of "secondary units" that function as stablecoin issuers' equity. The implementation varies with user-network effects and is guided by Tobin's q of transaction data as productive capital.