  Stablecoins are one of the most widely capitalized type of cryptocurrency.
However, their risks vary significantly according to their design and are often
poorly understood. We seek to provide a sound foundation for stablecoin theory,
with a risk-based functional characterization of the economic structure of
stablecoins. First, we match existing economic models to the disparate set of
custodial systems. Next, we characterize the unique risks that emerge in
non-custodial stablecoins and develop a model framework that unifies existing
models from economics and computer science. We further discuss how this
modeling framework is applicable to a wide array of cryptoeconomic systems,
including cross-chain protocols, collateralized lending, and decentralized
exchanges. These unique risks yield unanswered research questions that will
form the crux of research in decentralized finance going forward.
