Financial intermediation and risk in decentralized lending protocols

C Castro-Iragorri (), J Ramírez and S Vélez

No 19420, Documentos de Trabajo from Universidad del Rosario

Abstract: 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. Using publicly available information on rates, supply and borrow activity, and accounts we analyze different elements of the protocols. In particular, we estimate ex-post margins that give a comprehensive account of the cost of financial intermediation. We find that ex-post margins considering all markets are 1% and lower for stablecoin markets. In addition, we estimate quarterly indicators regarding solvency, asset quality, earnings and market risk similar to the ones used in traditional banking. This provides a first look at the use of these metrics and a comparison between the similarities and challenges to our understanding of financial intermediation in these protocols based on tools used for traditional banking.

Keywords: Decentralized finance; Compound; Aave; collateralize loans; intermediation margins; camels (search for similar items in EconPapers)
JEL-codes: C63 C80 E51 G21 G23 G51 O16 O33 (search for similar items in EconPapers)
Pages: 34
Date: 2021-07-27
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-fdg, nep-isf, nep-mac and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:019420

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