Facts and fantasies about DeFi: Lending, DEX and Derivatives

Grigoriy Korolev ()
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Grigoriy Korolev: New Economic School

No sp0002, Working Papers from New Economic School (NES)

Abstract: We explore risk-return tradeoff of Decentralized Finance (DeFi). We construct three novel indices for different asset classes: Lending, Decentralized Exchanges (DEX) and Derivatives. Motivated by the cryptocurrency pricing framework of Liu and Tsyvinski (2021), we investigate how DeFi assets comove with financial primitives. We document limited correlation with traditional equities, currencies, interest rates and commodities. We further examine several DeFi-specific factors. Bitcoin and Ethereum returns show no significant association with subsequent DeFi returns, highlighting a decoupling between base-layer assets and application-layer protocols. Meanwhile, we find some in-sample associations with DeFi-specific factors such as momentum, investor attention and performance of centralized platforms. A novel book-to-market ratio constructed using Total Value Locked and market capitalization does not display a systematic relationship with returns. Finally, we find only limited and sector-specific associations with traditional equity industries.

Keywords: Decentralized Finance; cryptocurrency; asset pricing; risk management; factor analysis. (search for similar items in EconPapers)
JEL-codes: G12 G23 G32 (search for similar items in EconPapers)
Pages: 48 pages
Date: 2026-04
New Economics Papers: this item is included in nep-pay
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