The DeFi Intermediation Chain

Pablo Azar, Adrian Casillas () and Maryam Farboodi ()
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Maryam Farboodi: https://mitsloan.mit.edu/faculty/directory/maryam-farboodi

No 20240805, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Decentralized Finance, or DeFi, is a rapidly growing ecosystem of financial applications built on blockchain technology, primarily on the Ethereum network. These applications aim to recreate traditional financial instruments and services, such as lending, borrowing, trading, and insurance. The DeFi intermediation chain connects a series of intermediaries who find arbitrage opportunities, aggregate transactions into blocks, validate these blocks, and ultimately append them to the blockchain. In this post, we summarize results from our staff report describing how arbitrage opportunities arise in the Ethereum blockchain, and how the need to keep these arbitrage opportunities private gives rise to the intermediation chain.

Keywords: financial intermediation; digital assets; intermediation chains (search for similar items in EconPapers)
JEL-codes: D82 G23 (search for similar items in EconPapers)
Date: 2024-08-05
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