Decentralized Lending and Its Users: Insights from Compound

Kanis Saengchote

No 162, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: Decentralized finance (DeFi) has recently gained much attention and scrutiny because of its rapid growth. DeFi services replicate traditional financial services such as lending, exchange, and asset management, but they are currently unregulated, unlike their traditional counterparts. We investigate Compound—one of the earliest and largest DeFi lending protocol—to show how it works, who the users are and the potential motivations behind their uses. We find that the loan durations are short (31 days on average), borrowing rates volatile and borrowers are concerned about liquidation risk. Further analyses reveal that some loan demand may arise from leveraged investment strategies. Taken together with the tacit leverage in DeFi yield farming, further availability of on-chain lending could potentially transpire into DeFi systemic risk.

Keywords: DeFi; Lending; Incentives (search for similar items in EconPapers)
JEL-codes: G10 G21 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2021-09
New Economics Papers: this item is included in nep-ban, nep-cwa and nep-pay
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Citations: View citations in EconPapers (2)

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