 Cryptocurrencies and decentralized finance (DeFi)Igor Makarov and Antoinette Schoar LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library Abstract: The paper provides an overview of cryptocurrencies and decentralized finance (DeFi). The discussion lays out potential benefits and challenges of the new system and presents a comparison to the traditional system of financial intermediation. Our analysis highlights that while the DeFi architecture might have the potential to reduce transaction costs, similar to the traditional financial system, there are several layers where rents can accumulate due to endogenous constraints to competition. We show that the permissionless and pseudonymous design of DeFi generates challenges for enforcing tax compliance and anti–money laundering laws and preventing financial malfeasance. We highlight ways to regulate the DeFi system which would preserve a majority of benefits of the underlying blockchain architecture but support accountability and regulatory compliance. Keywords: AAM; requested (search for similar items in EconPapers) Published in Brookings Papers on Economic Activity, 1, March, 2022, 2022-S, pp. 141-215. ISSN: 0007-2303 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:117711 Access Statistics for this paper More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC. |
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