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Facts and fantasies about DeFi: Lending, DEX and Derivatives

Author

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  • Grigoriy Korolev

    (New Economic School)

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.

Suggested Citation

  • Grigoriy Korolev, 2026. "Facts and fantasies about DeFi: Lending, DEX and Derivatives," Working Papers sp0002, New Economic School (NES).
    • Handle: RePEc:abo:neswpt:sp0002
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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