A Theoretical Approach to Stablecoin Design via Price Windows
Academic paper proves stablecoins face unavoidable choice between reserve depletion or inheriting backing asset volatility.
Researchers Katherine Molinet and Aris Filos-Ratsikas published a theoretical paper analyzing 'price window' stablecoin designs, where users can mint/redeem at fixed prices. Their 29-page analysis, accepted to Financial Cryptography 2026, proves these designs cannot achieve both short- and long-term stability without stable reserves. The mechanism forces a tradeoff: risk reserve depletion from arbitrage or widen price windows, causing the stablecoin to inherit its backing asset's volatility.
Why It Matters
This challenges core assumptions behind many algorithmic stablecoin designs, highlighting inherent vulnerabilities before real-world deployment.