The DeFi Ecosystem Game: Proof-Via-Simulations

Eliad Hoch ()

Chapter Chapter 14 in Mathematical Research for Blockchain Economy, 2024, pp 285-314 from Springer

Abstract: Abstract While current research in the design of DeFi protocols tends to focus on tokenomics, token distribution schedules, and other value propositions, it lacks quantitative proofs that takes into account real actors interacting with such systems. In other words, in realistic DeFi ecosystems, there are typically multiple investors with various investment objectives: short-term profit takers, liquidity providers, conservative risk mitigators, and sophisticated actors that maximise turnover at the expense of profits. This, consequently, could significantly influence the value proposition of a project’s native token, leading to a decreased demand for the proposed DeFi product. In an attempt to calibrate a solution, this article will demonstrate a ‘proof-via-simulation’: a game engine embedded with investor type models, competing in a simulated DeFi ecosystem that quantifies their profits and tokenomics statistics over time. Hence, a 40-months simulation of a hypothetical pseudo-realistic DeFi ecosystem is presented and analysed, in which thousands of investors span from 6 investor ‘types’; playing to maximise their investment goals, with the simulation outcomes statistically explored. The ‘proof-via-simulation’, With its code open-sourced, would assist future DeFi foundations to quantitatively assess the validity of their DeFi design principles.

Keywords: DeFi crypto trading strategies; DeFi ecosystem; DeFi tokenomics; Token distribution; Token monetary policy; DeFi simulator and statistical PnL analysis; DeFi proof-via-simulation; UniswapV2 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/978-3-031-68974-1_14

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