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Understanding DeFi Through the Lens of a Production-Network Model

Author

Listed:
  • Jonathan Chiu
  • Thorsten Koeppl
  • Hanna Yu
  • Shengxing Zhang

Abstract

Decentralized finance (DeFi) is composed of a variety of heterogeneous sectors that are interconnected through an input-output network of its tokens. We first use a panel data set to empirically document the evolution of the DeFi network across its different sectors. Instead of looking at the misleading measure of total value locked, we then employ a standard, theoretical production-network model to measure the value added and service outputs of the different DeFi sectors. Finally, based on a calibrated version of our model, we study which factors drive DeFi token prices and predict the equilibrium effects when network interconnectedness increases.

Suggested Citation

  • Jonathan Chiu & Thorsten Koeppl & Hanna Yu & Shengxing Zhang, 2023. "Understanding DeFi Through the Lens of a Production-Network Model," Staff Working Papers 23-42, Bank of Canada.
    • Handle: RePEc:bca:bocawp:23-42
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    More about this item

    Keywords

    Digital currencies and fintech; Payment clearing and settlement systems;

    JEL classification:

    • G - Financial Economics
    • G2 - Financial Economics - - Financial Institutions and Services

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