What drives DeFi market returns?

Quels sont les facteurs qui déterminent les rendements du marché DeFi ?

Florentina Şoiman (), Jean-Guillaume Dumas () and Sonia Jimenez-Garces ()
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Florentina Şoiman: CASC - Calcul Algébrique et Symbolique, Sécurité, Systèmes Complexes, Codes et Cryptologie - LJK - Laboratoire Jean Kuntzmann - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes
Jean-Guillaume Dumas: CASC - Calcul Algébrique et Symbolique, Sécurité, Systèmes Complexes, Codes et Cryptologie - LJK - Laboratoire Jean Kuntzmann - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes
Sonia Jimenez-Garces: CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes

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Abstract: Decentralized Finance (DeFi) is a nascent set of financial services, using tokens, smart contracts, and blockchain technology as financial instruments. We investigate 3 possible drivers of DeFi returns: exposure to the cryptocurrency market, the network effect, and the valuation ratio. As DeFi tokens are distinct from classical cryptocurrencies, we designed a new dedicated market index, denoted iDeFiX. We compare our index with the one created by Nasdaq and obtain similar results. First, we show that DeFi tokens returns are driven by their own network variables and the cryptocurrency market. We construct a valuation ratio for the DeFi market by dividing the Total Value Locked (TVL) by the Market Capitalization (MC). Our findings do not support the assumption regarding TVL/MC exposure. Overall, our empirical study shows that the impact of the cryptocurrency market on DeFi returns is stronger than any other considered driver and provides superior explanatory power.

Keywords: financial return; DeFi token; index; asset pricing (search for similar items in EconPapers)
Date: 2023-05-27
New Economics Papers: this item is included in nep-ban, nep-mfd and nep-pay
Note: View the original document on HAL open archive server: https://hal.science/hal-03625891v2
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Citations: View citations in EconPapers (4)

Published in Journal of International Financial Markets, Institutions and Money, 2023, 85 (101786), ⟨10.1016/j.intfin.2023.101786⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03625891

DOI: 10.1016/j.intfin.2023.101786

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