Related papers: Liquidity Risks in Lending Protocols: Evidence fro…
Blockchain-based decentralised lending is a rapidly growing and evolving alternative to traditional lending, but it poses new risks. To mitigate these risks, lending protocols have integrated automated risk management tools into their smart…
On November 22nd 2022, the lending platform AAVE v2 (on Ethereum) incurred bad debt resulting from a major liquidation event involving a single user who had borrowed close to \$40M of CRV tokens using USDC as collateral. This incident has…
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 set by the supply and demand of…
Lending protocols are one of the main applications of Decentralized Finance (DeFi), enabling crypto-assets loan markets with a total value estimated in the tens of billions of dollars. Unlike traditional lending systems, these protocols…
Lending pools are decentralized applications which allow mutually untrusted users to lend and borrow crypto-assets. These applications feature complex, highly parametric incentive mechanisms to equilibrate the loan market. This complexity…
Collateral is an item of value serving as security for the repayment of a loan. In blockchain-based loans, cryptocurrencies serve as the collateral. The high volatility of cryptocurrencies implies a serious barrier of entry with a common…
Financial speculators often seek to increase their potential gains with leverage. Debt is a popular form of leverage, and with over 39.88B USD of total value locked (TVL), the Decentralized Finance (DeFi) lending markets are thriving.…
Decentralized lending protocols, exemplified by Aave V3, have transformed financial intermediation by enabling permissionless, multi-chain borrowing and lending without intermediaries. Despite managing over $10 billion in total value…
We provide an overview of decentralized protocols like Compound and Aave that offer collateralized loans for cryptoasset investors. Compound and Aave are two of the most important application in the decentralized finance (DeFi) ecosystem.…
The trustless nature of permissionless blockchains renders overcollateralization a key safety component relied upon by decentralized finance (DeFi) protocols. Nonetheless, factors such as price volatility may undermine this mechanism. In…
We coin the term *Protocols for Loanable Funds (PLFs)* to refer to protocols which establish distributed ledger-based markets for loanable funds. PLFs are emerging as one of the main applications within Decentralized Finance (DeFi), and use…
The Lightning Network promises to alleviate Bitcoin's known scalability problems. The operation of such second layer approaches relies on the ability of participants to turn to the blockchain to claim funds at any time, which is assumed to…
Decentralized finance (DeFi) has the potential to disrupt centralized finance by validating peer-to-peer transactions through tamper-proof smart contracts, thus significantly lowering the transaction cost charged by financial…
Cryptocurrency lending pools are services that allow lenders to pool together assets in one cryptocurrency and loan it out to borrowers who provide collateral worth more (than the loan) in a separate cryptocurrency. Borrowers can repay…
This study provides a practical introduction to high-frequency trading in blockchain-based currency markets. These types of markets have some specific characteristics that differentiate them from the stock markets, such as a large number of…
In order to scale transaction rates for deployment across the global web, many cryptocurrencies have deployed so-called "Layer-2" networks of private payment channels. An idealized payment network behaves like a Credit Network, a model for…
We study Just-in-time (JIT) liquidity provision in blockchain-based decentralized exchanges. A JIT liquidity provider (LP) monitors pending swap orders in public mempools of blockchains to sandwich orders of their choice with liquidity,…
This paper presents Wrapless -- a lending protocol that enables the collateralization of bitcoins without requiring a trusted wrapping mechanism. The protocol facilitates a "loan channel" on the Bitcoin blockchain, allowing bitcoins to be…
Liquid staking has become the largest category of decentralized finance protocols in terms of total value locked. However, few studies exist on its implementation designs or underlying risks. The liquid staking protocols allow for earning…
This paper delves into the spectrum of credit risks associated with decentralized stablecoin issuance, ranging from overcollateralized lending to business-to-business credit. It examines the mechanisms, risks, and mitigation strategies at…