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Proceeding Paper

Incentives for Crypto-Collateralized Digital Assets

Department of Computer Science at the University of Colorado, Colorado Springs, CO 80918, USA
Presented at the 3rd annual Decentralized Conference, Athens, Greece, 30 October--1 November 2019.
Proceedings 2019, 28(1), 2;
Published: 21 October 2019
Digital currencies such as Bitcoin frequently suffer from high price volatility, limiting their utility as a means of purchasing power. Hence, a popular topic among cryptocurrency researchers is a digital currency design which inherits the decentralization of Bitcoin while somehow mitigating its violent price swings. One such system which attempts to establish a price-stable cryptocurrency is the BitShares market-pegged-asset protocol. In this paper, we present a simple mathematical model of the BitShares protocol, and analyze it theoretically and numerically for incentive effects. In particular, we investigate how the selection of two key design parameters function as incentive mechanisms to encourage token holders to commit their core BitShares tokens as collateral for the creation of new price-stabilized tokens. We show a pair of analytical results characterizing some simple facts regarding the interplay between these design parameters. Furthermore, we demonstrate numerically that in some settings, setting these design parameters is a complex, sensitive, and unintuitive task, prompting further work to more fully understand this design process.
Keywords: blockchain; cryptocurrency; decision theory; incentive design blockchain; cryptocurrency; decision theory; incentive design
MDPI and ACS Style

Brown, P.N. Incentives for Crypto-Collateralized Digital Assets. Proceedings 2019, 28, 2.

AMA Style

Brown PN. Incentives for Crypto-Collateralized Digital Assets. Proceedings. 2019; 28(1):2.

Chicago/Turabian Style

Brown, Philip N. 2019. "Incentives for Crypto-Collateralized Digital Assets" Proceedings 28, no. 1: 2.

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