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DeFi – Potential, Advantages and Challenges

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  • Svetoslav Borisov

Abstract

Blockchain technology may decrease transaction costs, promote decentralised platforms and build distributed trust, paving the road to new business models. In the financial sector, blockchain technology approves the progress of more innovative, boundless and clear decentralised financial services. Decentralised financial services can broaden financial encompassment by promoting open access and innovation. By scraping out several restrictions, they reveal new opportunities for entrepreneurs and innovators. A year ago, the whole value locked in DeFi (Decentralised finance) systems was almost $600 million, and by May 2021, it was about $88 billion. The frantic development of the ecosystem requires newcomers to understand its basic characteristics. The purpose of this paper is to estimate the advances of decentralised finance, classify current business models, and outline potential challenges and constraints.

Suggested Citation

  • Svetoslav Borisov, 2022. "DeFi – Potential, Advantages and Challenges," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 4, pages 33-54.
    • Handle: RePEc:bas:econst:y:2022:i:4:p:33-54
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    References listed on IDEAS

    as
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    More about this item

    JEL classification:

    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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