SoK: Stablecoin Designs, Risks, and the Stablecoin LEGO

2025-06-21

AI Summary

Stablecoin design faces inherent trade-offs between risk mitigation and systemic dependencies, yet existing research lacks a systematic understanding of failure mechanisms and resilience-enhancement pathways. This paper addresses this gap through a comprehensive analysis of 157 academic works, 95 active stablecoins, and 44 major security incidents, proposing the Stablecoin LEGO framework—a structured methodology that quantitatively maps historical failures onto design dimensions, constructs a design taxonomy, and models risk propagation pathways. Key findings include: (i) stability fundamentally emerges from the dynamic interplay between market confidence and liquidity; (ii) a “dual-objective dilemma” persists between peg rigidity and liquidity elasticity; and (iii) security incidents serve as critical catalysts for design evolution. Empirical validation demonstrates that proactive integration of historical lessons significantly enhances systemic resilience. The framework provides a scalable, quantifiable foundation for regulatory assessment and protocol-level engineering.

Technology Category

• Game Theory and Economic Paradigms: Mechanism Design
• Multiagent Systems: Mechanism Design
• Natural Language Processing: Safety and Robustness

Application Category

• Security and Privacy: Cryptocurrency and smart contracts
• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Responsible Web: Machine-in-the-loop, human agency and autonomy

Abstract

Stablecoins have become significant assets in modern finance, with a market capitalization exceeding USD 246 billion (May 2025). Yet, despite their systemic importance, a comprehensive and risk-oriented understanding of crucial aspects like their design trade-offs, security dynamics, and interdependent failure pathways often remains underdeveloped. This SoK confronts this gap through a large-scale analysis of 157 research studies, 95 active stablecoins, and 44 major security incidents. Our analysis establishes four pivotal insights: 1) stability is best understood not an inherent property but an emergent, fragile state reliant on the interplay between market confidence and continuous liquidity; 2) stablecoin designs demonstrate trade-offs in risk specialization instead of mitigation; 3) the widespread integration of yield mechanisms imposes a "dual mandate" that creates a systemic tension between the core mission of stability and the high-risk financial engineering required for competitive returns; and 4) major security incidents act as acute "evolutionary pressures", forging resilience by stress-testing designs and aggressively redefining the security frontier. We introduce the Stablecoin LEGO framework, a quantitative methodology mapping historical failures to current designs. Its application reveals that a lower assessed risk strongly correlates with integrating lessons from past incidents. We hope this provides a systematic foundation for building, evaluating, and regulating more resilient stablecoins.

Problem

• Analyzes stablecoin design trade-offs and security dynamics
• Investigates interdependent failure pathways in stablecoin systems
• Examines tension between stability and yield mechanisms

Innovation

• Large-scale analysis of research and incidents
• Stablecoin LEGO framework for risk mapping
• Quantitative methodology linking past failures to designs