  An algorithmic stablecoin is a type of cryptocurrency managed by algorithms
(i.e., smart contracts) to dynamically minimize the volatility of its price
relative to a specific form of asset, e.g., US dollar. As algorithmic
stablecoins have been growing rapidly in recent years, they become much more
volatile than expected. In this paper, we took a deep dive into the core of
algorithmic stablecoins and shared our answer to two fundamental research
questions, i.e., Are algorithmic stablecoins volatile by design? Are they
volatile in practice? Specifically, we introduced an in-depth study on three
popular types of algorithmic stablecoins and developed a modeling framework to
formalize their key design protocols. Through formal verification, the
framework can identify critical conditions under which stablecoins might become
volatile. Furthermore, we performed a systematic empirical analysis on real
transaction activities of the Basis Cash stablecoin to relate theoretical
possibilities to market observations. Lastly, we highlighted key design
decisions for future development of algorithmic stablecoins.
