Disentangling Decentralized Finance (DeFi) Compositions

Kitzler, Stefan; Victor, Friedhelm; Saggese, Pietro; Haslhofer, Bernhard

doi:10.48550/arxiv.2111.11933

Cited by 5 publications

(4 citation statements)

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“…A measurement study by Kitzler et al. [23] empirically analyzes and visualizes DeFi compositions -demonstrating the intertwined nature of DeFi protocols. Wachter et al [46] measure growing asset composability as a proxy for the interoperability of the DeFi applications.…”

Section: Related Workmentioning

confidence: 99%

DeFi Lending During The Merge

Heimbach¹,

Schertenleib²,

Wattenhofer³

2023

SSRN Journal

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Section: Related Workmentioning

confidence: 99%

DeFi Lending During The Merge

Heimbach¹,

Schertenleib²,

Wattenhofer³

2023

SSRN Journal

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“…Tolmach et al [45] provide a formal analysis of DeFi composability and propose a technique for efficient property verification. A measurement study by Kitzler et al [33] empirically analyzes and visualizes DeFi compositions -demonstrating the intertwined nature of DeFi protocols. Wachter et al [48] measure growing asset composability as a proxy for the interoperability of the DeFi applications.…”

Section: Related Workmentioning

confidence: 99%

DeFi Lending During The Merge

Heimbach¹,

Schertenleib²,

Wattenhofer³

2023

Preprint

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Lending protocols in decentralized finance enable the permissionless exchange of capital from lenders to borrowers without relying on a trusted third party for clearing or market-making. Interest rates are purely set by the supply and demand of capital according to a pre-defined function. In the lead-up to The Merge: Ethereum blockchain's transition from proof-of-work (PoW) to proof-of-stake (PoS), a fraction of the Ethereum ecosystem announced plans of continuing with a PoW-chain. Owners of ETH -whether their ETH was borrowed or not -would hold the native tokens on each chain. This development alarmed lending protocols. They feared spiking ETH borrowing rates would lead to mass liquidations which could undermine their viability. Thus, the decentralized autonomous organization running the protocols saw no alternative to intervention -restricting users' ability to borrow.We investigate the effects of the merge and the aforementioned intervention on the two biggest lending protocols on Ethereum: AAVE and Compound. Our analysis finds that borrowing rates were extremely volatile, jumping by two orders of magnitude, and borrowing at times reached 100% of the available funds. Despite this, no spike in mass liquidations or irretrievable loans materialized. Further, we are the first to quantify and analyze hard-fork-arbitrage, profiting from holding debt in the native blockchain token during a hard fork. We find that arbitrageurs made in excess of 13 Mio US$, money that was effectively extracted from the platforms' lenders.Finally, we identify alarming security risks to the entire Ethereum ecosystem. Around one-fifth of the staked ETH through LIDO (stETH) was locked as collateral on lending protocols. Mass liquidations caused by spiking rates would have devastating effects on the stETH price and pose security concerns for the consensus layer, as staking power could be bought at a significant discount.

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“…El estudio investiga la relación entre las valoraciones de los protocolos DeFi y una serie de métricas financieras utilizadas habitualmente para evaluar el rendimiento de estos protocolos. La bibliografía existente sobre el emergente mercado DeFi se centra principalmente en cuestiones teóricas, como los retos, los beneficios y el potencial del ecosistema DeFi (Abdulhakeem y Hu 2021;Werner et al 2021;Calcaterra y Kaal 2021;Makarov y Schoar 2022), así como las primitivas, los tipos de protocolos operativos y los problemas de seguridad (Werner et al 2021;Sun et al 2021;Kitzler et al 2021;Caldarelli y Ellul 2021). Además, algunos estudios han abordado los problemas y riesgos asociados a la formación de mercados DeFi, como la manipulación del mercado, la distorsión de los incentivos, el excesivo cortoplacismo, los esquemas Ponzi y el blanqueo de dinero (Chohan 2021;Schär 2021;Sun et al 2021;Caldarelli y Ellul 2021;Bekemeier 2021).…”

Section: Introductionunclassified

Evaluación de los factores determinantes de las valoraciones de los protocolos DeFi: Un análisis cuantitativo

Metelski,

Sobieraj

2024

JASCS

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Disentangling Decentralized Finance (DeFi) Compositions

Cited by 5 publications

References 0 publications

DeFi Lending During The Merge

DeFi Lending During The Merge

DeFi Lending During The Merge

Evaluación de los factores determinantes de las valoraciones de los protocolos DeFi: Un análisis cuantitativo

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