kaal:claim:3402701-019

Selling currency into a reserve when price is above the peg and buying it back with the reserve when price is below the peg yields an arbitrage profit, so a reserve can fund its own defense of the peg.

In the next paragraph we demonstrate the obvious result that selling the currency when the price is high to build a reserve, then buying the currency back with the reserve when the price is low will yield an arbitrage profit

Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Stable Cryptocurrencies - First Order Principles (2019), 3.1.2.2 Reserves, p. 19
https://ssrn.com/abstract=3402701 · source PDF

Craig Calcaterra, Wulf A. Kaal, Vadhindran K. Rao, Stable Cryptocurrencies - First Order Principles (2019). SSRN: https://ssrn.com/abstract=3402701

• the reserve currency is more stable than the base currency
• the cost to implement and maintain the reserve is ignored

mechanismsupport: arguedinstitutional-design

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