Why DeFi lending? Evidence from Aave V2

Giulio Cornelli, Leonardo Gambacorta, Rodney Garratt and Alessio Reghezza ()

No 1183, BIS Working Papers from Bank for International Settlements

Abstract: Decentralised finance (DeFi) lending protocols have experienced significant growth recently, yet the motivations driving investors remain largely unexplored. We use granular, transaction-level data from Aave, a leading player in the DeFi lending market, to study these motivations. Our theoretical and empirical findings reveal that the search for yield predominantly drives liquidity provision in DeFi lending pools, whereas borrowing activity is mainly influenced by speculative and, to some extent, governance motives. Both retail- and large investors seek potential high returns through market movements and price speculation, however the latter engage in DeFi borrowing relatively more than the former also to influence protocol decisions and accrue more significant governance rights.

Keywords: cryptocurrency; DeFi; decentralized finance; lending (search for similar items in EconPapers)
JEL-codes: G18 G23 O39 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-ban, nep-mac and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Why DeFi lending? Evidence from Aave V2 (2024)
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