Network Topology in Decentralized Finance

K Saengchote (kanis@cbs.chula.ac.th) and C Castro-Iragorri (carlos.castro@urosario.edu.co)

No 20782, Documentos de Trabajo from Universidad del Rosario

Abstract: The composability and anonymity of participants in Decentralized Finance pose significant challenges in understanding their interactions and the buildup of risk within the network. We map the interconnections among decentralized finance protocols using transactions among contracts and addresses, explore singlelayer and multiplex network properties and quantify the financial exposure of the most critical nodes. We observe scale-free properties similar to traditional financial networks, but the inclusion of user interactions and the influence of externally owned accounts yield distinct network characteristics. Furthermore, centrality measures and high-frequency metrics provide insights into systemically important participants and at-risk protocols, necessitating further research to develop robust risk measures. By identifying potential vulnerabilities and developing appropriate risk management strategies, the stakeholders can help ensure the stability and safety of decentralized finance as a viable alternative to traditional financial systems.

Keywords: Blockchain; composability; networks (search for similar items in EconPapers)
JEL-codes: D53 D85 G20 L14 (search for similar items in EconPapers)
Pages: 22
Date: 2023-06-07
New Economics Papers: this item is included in nep-ban, nep-net and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000092:020782

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