Decentralized Finance: On Blockchain- and Smart Contract-Based Financial Markets

Fabian Schär

Review, 2021, vol. 103, issue 2, 153-174

Abstract: The term decentralized finance (DeFi) refers to an alternative financial infrastructure built on top of the Ethereum blockchain. DeFi uses smart contracts to create protocols that replicate existing financial services in a more open, interoperable, and transparent way. This article highlights opportunities and potential risks of the DeFi ecosystem. I propose a multi-layered framework to analyze the implicit architecture and the various DeFi building blocks, including token standards, decentralized exchanges, decentralized debt markets, blockchain derivatives, and on-chain asset management protocols. I conclude that DeFi still is a niche market with certain risks but that it also has interesting properties in terms of efficiency, transparency, accessibility, and composability. As such, DeFi may potentially contribute to a more robust and transparent financial infrastructure.

Keywords: blockchain; financial markets (search for similar items in EconPapers)
JEL-codes: E59 G15 G23 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

Downloads: (external link)
https://files.stlouisfed.org/research/publications ... inancial-markets.pdf Article Full Text (application/pdf)
https://research.stlouisfed.org/publications/review/2021/04/15/full-issue.pdf Issue Full Text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found (https://research.stlouisfed.org/publications/review/2021/04/15/full-issue.pdf [301 Moved Permanently]--> https://www.stlouisfed.org/publications/review/2021/04/15/full-issue.pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedlrv:91428

DOI: 10.20955/r.103.153-74

Access Statistics for this article

Review is currently edited by Juan M. Sanchez

More articles in Review from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by Scott St. Louis ().