The adaptive market hypothesis of Decentralized finance (DeFi)

Zhang, Yuanyuan; Chan, Stephen; Chu, Jeffrey; Shih, Shou–hsing

doi:10.1080/00036846.2022.2133895

Cited by 11 publications

(3 citation statements)

References 37 publications

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“…As DeFi grows, it might challenge traditional finance in various ways. DeFi systems make financial services more affordable and accessible by eliminating centralized intermediaries and reducing transaction costs and processing times (Zhang et al, 2023). Smart contracts can also be programmed to create new financial goods and services like decentralized exchanges (DEXs), automated market makers (AMMs), and yield farming protocols.…”

Section: Introductionmentioning

confidence: 99%

<strong>The Rise of DeFi: Transforming Traditional Finance with Blockchain Innovation</strong>

Ahmed

2024

Preprint

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The emergence of decentralized finance (DeFi) signifies a fundamental change in the financial sector, utilizing blockchain technology to revolutionize conventional financial structures. This study aims to investigate the development, underlying principles, and practical applications of DeFi while analyzing the regulatory factors, upcoming patterns, and policy consequences. This study employs a thorough research methodology encompassing a literature review and case studies to examine the fundamental elements, uses, and instances of success in DeFi. It emphasizes the potential for transformation and the obstacles it faces. The study identified legal ambiguity, difficulties in achieving scale, and constraints related to compliance as primary concerns for policymakers. The fundamental discoveries encompass the pivotal function of blockchain technology in facilitating DeFi platforms, the tangible implementations of DeFi in lending, borrowing, and trading, and the necessity for clear regulations and global cooperation. The policy implications encompass the significance of maintaining a balance between innovation and compliance, promoting international collaboration, and prioritizing consumer protection measures. In summary, this study enhances our comprehension of the emergence of DeFi and its consequences for conventional finance. It offers valuable insights for policymakers, industry participants, and scholars in effectively navigating the changing realm of decentralized finance.

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Section: Introductionmentioning

confidence: 99%

<strong>The Rise of DeFi: Transforming Traditional Finance with Blockchain Innovation</strong>

Ahmed

2024

Preprint

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“…DeFi Derivatives: The DeFi derivatives market, still in its nascent stages, has shown remarkable growth. At the end of 2020, its total value locked (TVL) was around USD 25 billion and is estimated to be 10×greater than the global GDP [85]. 4.…”

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confidence: 99%

“…Emerging Trends: Several emerging trends are notable in DeFi, including the integration of traditional financial products, the monetization of blockchain games, and the rise in DeFi insurance policies [85,86].…”

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confidence: 99%

A Review on Decentralized Finance Ecosystems

Alamsyah,

Kusuma,

Ramadhani

2024

Future Internet

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The future of the internet is moving toward decentralization, with decentralized networks and blockchain technology playing essential roles in different sectors. Decentralized networks offer equality, accessibility, and security at a societal level, while blockchain technology guarantees security, authentication, and openness. Integrating blockchain technology with decentralized characteristics has become increasingly significant in finance; we call this “decentralized finance” (DeFi). As of January 2023, the DeFi crypto market capitalized USD 46.21 billion and served over 6.6 million users. As DeFi continues to outperform traditional finance (TradFi), it provides reduced fees, increased inclusivity, faster transactions, enhanced security, and improved accessibility, transparency, and programmability; it also eliminates intermediaries. For end users, DeFi presents asset custody options, peer-to-peer transactions, programmable control features, and innovative financial solutions. Despite its rapid growth in recent years, there is limited comprehensive research on mapping DeFi’s benefits and risks alongside its role as an enabling technology within the financial services sector. This research addresses these gaps by developing a DeFi classification system, organizing information, and clarifying connections among its various aspects. The research goal is to improve the understanding of DeFi in both academic and industrial circles to promote comprehension of DeFi taxonomy. This well-organized DeFi taxonomy aids experts, regulators, and decision-makers in making informed and strategic decisions, thereby fostering responsible integration into TradFi for effective risk management. This study enhances DeFi security by providing users with clear guidance on existing mechanisms and risks in DeFi, reducing susceptibility to misinformation, and promoting secure participation. Additionally, it offers an overview of DeFi’s role in shaping the future of the internet.

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What drives the return and volatility spillover betweenDeFisand cryptocurrencies?

Assaf,

Demir,

Ersan

2024

Int. J Fin Econ

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In this paper, we study the return and volatility connectedness between cryptocurrencies and DeFi Tokens, considering the impact of different uncertainty indices on their connectivity. Initially, we estimate a TVP‐VAR model to obtain the total connectedness between the two markets. We find that returns on the cryptocurrencies transmit significantly larger shocks and, thus, are responsible for most variations in the majority of DeFis' returns. Then, to analyse the impact of uncertainty on total return and volatility connectedness, we use four factors, namely, Economic Policy Uncertainty (EPU), The Chicago Board Options Exchange Volatility Index (VIX), Infectious Disease Equity Market Volatility Tracker (ID‐EMV) and Geopolitical Risks (GPR). We find that except for geopolitical risks, all three measures have a positive impact on return and volatility connectedness, while GPR exerts a negative impact. Finally, we provide implications for researchers, market participants and policymakers.

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The adaptive market hypothesis of Decentralized finance (DeFi)

Cited by 11 publications

References 37 publications

<strong>The Rise of DeFi: Transforming Traditional Finance with Blockchain Innovation</strong>

<strong>The Rise of DeFi: Transforming Traditional Finance with Blockchain Innovation</strong>

A Review on Decentralized Finance Ecosystems

What drives the return and volatility spillover betweenDeFisand cryptocurrencies?

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