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Bitcoin is so Last Decade – How Decentralized Finance (DeFi) could Shape the Digital Economy

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  • BELAŞCU Lucian
  • HOROBEȚ Alexandra
  • MNOHOGHITNEI Irina

Abstract

Ever since the Global Financial Crisis, the financial system has seen an accelerated level of innovation. Bitcoin offered a decentralized alternative to money, with thousands of other cryptoassets quickly emerging. Most recently, Decentralized Finance (DeFi) promises to offer a new digital economy, with smart contracts replacing the need for financial intermediaries. This new market aims to reinvent traditional financial products in a more transparent and interoperable way. In this paper we aim to undertake an extensive literature review of the financial stability risks posed by the fast-growing DeFi market and assess these using the Financial Stability Board’s fintech framework. We find that DeFi could pose several challenges to traditional financial infrastructure, primarily by increasing interlinkages between cryptoassets and traditional financial markets. However, if DeFi evolves in a safe way, it could increase competition and financial inclusion with overall positive implications for financial stability.

Suggested Citation

  • BELAŞCU Lucian & HOROBEȚ Alexandra & MNOHOGHITNEI Irina, 2022. "Bitcoin is so Last Decade – How Decentralized Finance (DeFi) could Shape the Digital Economy," European Journal of Interdisciplinary Studies, Bucharest Economic Academy, issue 01, March.
    • Handle: RePEc:jis:ejistu:y:2022:i:01:id:483
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    References listed on IDEAS

    as
    1. Jiahua Xu & Nikhil Vadgama, 2021. "From banks to DeFi: the evolution of the lending market," Papers 2104.00970, arXiv.org, revised Dec 2022.
    2. Sirio Aramonteand & Wenqian Huang & Andreas Schrimpf, 2021. "DeFi risks and the decentralisation illusion," BIS Quarterly Review, Bank for International Settlements, December.
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    More about this item

    Keywords

    DeFi; financial stability; fintech; cryptoasset; cryptocurrency;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other

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