Decentralized Finance (DeFi) assurance: early evidence

Thomas Bourveau (), Janja Brendel () and Jordan Schoenfeld ()
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Thomas Bourveau: Columbia University, Graduate School of Business
Janja Brendel: Chinese University of Hong Kong Business School
Jordan Schoenfeld: University of Utah, Eccles School of Business

Review of Accounting Studies, 2024, vol. 29, issue 3, No 5, 2209-2253

Abstract: Abstract Decentralized finance (DeFi) has emerged to offer traditional financial services such as lending, borrowing, and trading without intermediaries (e.g., banks). DeFi transactions are typically executed using a special digital class of contracts called smart contracts. These contracts are self-executing and hard-coded directly on a blockchain. We observe the emergence of a new class of voluntary audits that evaluate the integrity of these contracts. Using a hand-coded sample of about 8,500 smart contract audit reports, we provide some of the first evidence showing that (1) these audits are pervasive, (2) the audit firm market is composed of new technical audit firms, (3) the scope of these audits can span a variety of contract features, (4) the audit inputs and outputs differ substantively from those of conventional financial audits, and (5) the market reacts positively to the release of these audit reports, suggesting that these reports are value-relevant. These findings highlight the demand for novel assurance services driven by blockchain technology.

Keywords: Auditing; Decentralized finance; Smart contracts; Blockchain technology (search for similar items in EconPapers)
JEL-codes: G14 G19 G29 M13 M15 M42 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s11142-024-09834-8

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