Design of a multi-asset-backed stablecoin and a multilateral order matching system

Abstract: Cryptocurrencies, specifically designed for price stability, called stablecoins, have emerged to counteract the volatility that has been prevalent in cryptocurrency markets over the past decade. Stablecoins often use one, or in some cases, multiple collateral assets to maintain a stable value. The process of changing the circulating supply and of ensuring a constant degree of collateralization becomes more complex when more than one collateral asset is used.We examine the properties of an algorithm, built into a decentralized exchange protocol, that without depending on an external price feed, automatically accumulates a basket of collateral assets as users interact with the protocol. The proposed algorithm permits a variable collateralization level, which is a design choice that exposes the currency to numerous risks.For this reason, we propose two alternative solutions: one that uses multiobjective optimization to maintain a target collateralization level, and one that updates each collateral amount atomically, so that each coin is backed by a fixed multiset of collateral quantities, which ensures a constant degree of collateralization. To achieve this, the algorithm uses multilateral order matching where multiple orders are matched on several markets within the same block. Experimental results in a simulation environment, where market actors use an external market for price discovery, show that multilateral order matching produces 1.9% more trading volume than a regular market.To the best of our knowledge, this is the first study that unveils the challenges of designing a multi-asset-backed stablecoin without a price-feed mechanism, that outlines and formalizes the potential risks with such a design, and that proposes possible algorithmic solutions.