Working papers

Blockchain Congestion Facilitates Currency Competition [slides]

revision requested, Journal of Economic Theory

Blockchain capacity constraints induce congestion when many users want to transact at the same time, challenging the usability of cryptocurrencies as money. This paper argues that blockchain capacity constraints, coupled with the need to incentivize miners (validators) to maintain blockchain security, lead to low inflation outcomes when cryptocurrencies compete for user demand. If two coins are both used as medium of exchange, a low-inflation coin must experience higher congestion than a high-inflation coin; otherwise demand for the latter is zero. Coin issuers then strategically undercut each other's money growth rates to boost transaction demand, limiting the overall inflation rate of the economy. However, the equilibrium is necessarily inefficient given unrealized gains from trade due to congestion and the cost of maintaining blockchain security.

Currency Competition with Firms

revision requested, Journal of Economic Theory

This paper analyzes currency competition between a central bank and firms. I present a benchmark with a monopoly firm which optimally implements deflationary monetary policy to boost product sales. This disciplines the central bank. The firm is a strong competitor as it can ensure the implementation and time-consistency of its monetary policy. I extend the benchmark to analyze the optimal policy of a currency consortium which issues money accepted by other firms. Inflationary pressures arise as the private currency becomes more widely used, and the central bank disciplines the consortium. Forcing firms to back their currencies with central bank reserves makes issuing money unprofitable and induces commitment issues.  

Achieving Consensus on Blockchains (with Zahra Ebrahimi, Bryan Routledge and Ariel Zetlin-Jones)

Blockchain is a database technology that enables a group of self-interested users to maintain a distributed ledger without relying on a trusted third party, such as a bank. In this paper, we develop a new game-theoretic framework for analyzing blockchain systems, wherein each user determines how to update the distributed ledger. The usefulness of blockchains depends on whether users’ updating strategies achieve consensus—meaning that they agree on the correct version of the ledger and have no incentive to omit or alter past data. We show that the currently implemented strategy—the longest chain rule—fails to achieve consensus when users are sufficiently heterogeneous. We then establish the existence of new equilibrium strategies, which are slight modifications of the longest chain rule and ensure consensus regardless of the degree of heterogeneity. In practice, these equilibrium strategies enhance the resilience of blockchain systems against threats such as double-spending and 51% attacks. Our findings underscore the critical role economic incentives play in determining the security and stability of blockchain ledgers.  

Smart Banks (with Alkis Georgiadis-Harris and Yuliyan Mitkov) [slides]

Since Diamond and Dybvig (1983), banks have been viewed as inherently fragile. We challenge this view in a general mechanism design framework. Our approach allows for flexibility in the design of banking mechanisms while maintaining limited commitment of the intermediary to future mechanisms. We find that the unique equilibrium outcome is efficient. Consequently, runs cannot occur in equilibrium. Our analysis identifies the ultimate source of fragility: banks are fragile if they cannot collect and optimally respond to useful information during a run; and not just because they are illiquid in the short-run. Finally, we leverage these insights to offer two ideas on improving stability: one building on existing demandable debt arrangements, which is viable in the short-term; and a longer-term solution utilizing technologies surrounding 'smart contracts.'

Optimal Financial Intermediation  (with Yuliyan Mitkov)

[previously circulated as "Optimal Banking Arrangements: Liquidity Creation without Financial Fragility"]

Banks are intermediaries that issue deposits to finance loans, which exposes them to runs. Diamond and Rajan (2000, 2001) argue that this financial fragility is precisely why banks emerge as a solution to the hold-up problem identified by Hart and Moore (1994). We revisit this framework and characterize the optimal financial intermediation arrangement, which maintains the desirable properties of deposits while avoiding runs. Thus, in contrast to Diamond and Rajan, we find that fragility is not essential for but rather detrimental to the efficient flow of credit in the economy. Our arrangement accommodates asset risk while remaining safer than deposits and consistent with creditor monitoring incentives. It also has a natural implementation as an open-end fund and is consistent with empirical findings. Finally, we identify government guarantees as a rationale for deposit financing.

Bank Resolution, Deposit Insurance, and Fragility (with Alkis Georgiadis-Harris)

Since the Great Financial Crisis, the share of insured and uninsured deposits in bank liabilities has increased substantially for large US banks - but not for smaller ones. We offer a theoretical explanation in the introduction of resolution powers, i.e. the ability to impose losses on bank shareholders and creditors. In such a world, banks issue deposits in order to channel resources towards uninsured depositors, imposing losses on insured depositors and forcing the government to conduct bailouts. Our model suggests that resolution and deposit insurance must be complemented by equity or long-term debt requirements.

Measuring Bail-in Credibility (with George Pennacchi)

We empirically investigate the credibility of bank recapitalization reforms using a structural model similar to Merton (1974, 1977). Bank liabilities are contingent claims on its assets so that bank equity and debt can be interpreted as options on asset values. In the data, credit spreads on bank debt are valued as the product of ‘no-bailout’ probabilities and expected loss rates in the absence of a bailout. We calculate the latter using equity and balance sheet data. The no-bailout probability is estimated by regressing credit default swaps (CDS) spreads on the model-implied no-bailout loss rates. Before the Lehman bankruptcy, we find significantly higher market-perceived bailout probabilities for US banks, particularly G-SIBs, relative to non-financial firms. Since the Great Financial Crisis, bailout probabilities have clearly declined, and no longer differ statistically significantly.

Recent and upcoming presentations

Recent:

AFA 2025 (presentation, discussion)

Frankfurt School Digital Finance Conference (presentation)

BIS-CEPR-Gerzensee-SFI Conference on Financial Intermediation (poster)

BSE Summer Forum 2025, Financial Intermediation & Risk (presentation)

SNB-CIF crypto-assets conference (discussion)

Upcoming:

Summer Workshop on Money, Banking, Payments, and Finance 2025 (presentation x2)

EFA 2025 (presentation x2)

WBS Gillmore DeFi & Digital Currencies conference (presentation)

11th IWH-FIN-FIRE Workshop (discussion)

3rd Workshop on Markets and Intermediaries, Humboldt University & Deutsche Bundesbank  (presentation)

Bank of Canada  (seminar)

CEPR RPN FinTech and Digital Currencies Annual Meeting 2025 (presentation x2)

CEPR Paris Symposium 2025 (presentation)

Teaching

Lecturer, University of Bonn, Digital Finance (MSc)

I designed a course on blockchain economics and digital money. Students learn about the economic limits of blockchains and develop an understanding of currency competition in models of money as medium of exchange.

I won the teaching excellence award as  best lecturer for all master elective modules.

Syllabus 2024,  Teaching Evaluations 2022, Teaching Evaluations 2023, Teaching Evaluations 2024

Lecturer, University of Bonn, Seminar "Wissenschaftliches Arbeiten" (BSc)

Seminar that introduces principles of research to undergraduate students.

Teaching Fellow, LSE, Ec424  Monetary Economics and Aggregate Fluctuations (MSc)

Full-year course covering money’s roles as a medium of exchange and unit of account, monetary policy in the presence of nominal rigidities,  unconventional monetary policies, firm price setting behaviour, central bank communication, fiscal policy and financial crises. 

Teaching Evaluations 2017 - 2021

Teaching Assistant, LSE, Ec210  Intermediate Macroeconomics (BSc)

Teaching Evaluations 2017