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SoK: Decentralized Finance (DeFi)

Author

Listed:
  • Sam M. Werner
  • Daniel Perez
  • Lewis Gudgeon
  • Ariah Klages-Mundt
  • Dominik Harz
  • William J. Knottenbelt

Abstract

Decentralized Finance (DeFi), a blockchain powered peer-to-peer financial system, is mushrooming. Two years ago the total value locked in DeFi systems was approximately 700m USD, now, as of April 2022, it stands at around 150bn USD. The frenetic evolution of the ecosystem has created challenges in understanding the basic principles of these systems and their security risks. In this Systematization of Knowledge (SoK) we delineate the DeFi ecosystem along the following axes: its primitives, its operational protocol types and its security. We provide a distinction between technical security, which has a healthy literature, and economic security, which is largely unexplored, connecting the latter with new models and thereby synthesizing insights from computer science, economics and finance. Finally, we outline the open research challenges in the ecosystem across these security types.

Suggested Citation

  • Sam M. Werner & Daniel Perez & Lewis Gudgeon & Ariah Klages-Mundt & Dominik Harz & William J. Knottenbelt, 2021. "SoK: Decentralized Finance (DeFi)," Papers 2101.08778, arXiv.org, revised Sep 2022.
    • Handle: RePEc:arx:papers:2101.08778
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Son, Bumho & Lee, Yunyoung & Jang, Huisu, 2025. "A two-stage game model of probabilistic price manipulation in decentralized exchanges," Economic Modelling, Elsevier, vol. 147(C).
    2. Jiahua Xu & Nikhil Vadgama, 2021. "From banks to DeFi: the evolution of the lending market," Papers 2104.00970, arXiv.org, revised Dec 2022.
    3. Robin Fritsch & Samuel Kaser & Roger Wattenhofer, 2022. "The Economics of Automated Market Makers," Papers 2206.04634, arXiv.org.
    4. Bruno Mazorra & Victor Adan & Vanesa Daza, 2022. "Do Not Rug on Me: Leveraging Machine Learning Techniques for Automated Scam Detection," Mathematics, MDPI, vol. 10(6), pages 1-24, March.
    5. Teng Andrea Xu & Jiahua Xu, 2022. "A Short Survey on Business Models of Decentralized Finance (DeFi) Protocols," Papers 2202.07742, arXiv.org, revised Jul 2023.
    6. Lucy Huo & Ariah Klages-Mundt & Andreea Minca & Frederik Christian Munter & Mads Rude Wind, 2021. "Decentralized Governance of Stablecoins with Closed Form Valuation," Papers 2109.08939, arXiv.org, revised Jul 2022.
    7. C Castro-Iragorri & J RamÔøΩrez & S VÔøΩlez, 2021. "Financial intermediation and risk in decentralized lending protocols," Documentos de Trabajo 19420, Universidad del Rosario.
    8. Bruno Mazorra & Victor Adan & Vanesa Daza, 2022. "Do not rug on me: Zero-dimensional Scam Detection," Papers 2201.07220, arXiv.org.
    9. Simon Cousaert & Jiahua Xu & Toshiko Matsui, 2021. "SoK: Yield Aggregators in DeFi," Papers 2105.13891, arXiv.org, revised Mar 2022.
    10. Yixin Cao & Chuanwei Zou & Xianfeng Cheng, 2021. "Flashot: A Snapshot of Flash Loan Attack on DeFi Ecosystem," Papers 2102.00626, arXiv.org.
    11. Şoiman, Florentina & Dumas, Jean-Guillaume & Jimenez-Garces, Sonia, 2023. "What drives DeFi market returns?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    12. Carlos Castro-Iragorri & Julian Ramirez & Sebastian Velez, 2021. "Financial intermediation and risk in decentralized lending protocols," Papers 2107.14678, arXiv.org.

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