IDEAS home Printed from https://ideas.repec.org/p/hal/cesptp/hal-04867554.html

Efficiency and Security in DeFi Lending

Author

Listed:
  • Sylvain Carré

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique)

  • Franck Gabriel

    (LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

Abstract

We investigate the design of efficient DeFi lending interest rate mechanisms (IRMs) in a tractable general equilibrium model. One notable feature of our framework, which contrasts with other narratives, is that a friction makes the optimal utilization rate state-dependent. Specifically, the friction we consider is that the security of the underlying (Proof-of-Stake) blockchain is endogenous to the market value of the staking pool. Our analysis provides a new interpretation of what an IRM does. Our main results are to rationalize the widespread use of IRMs depending on the utilization rate only by proving that those are optimal under a condition that we explicit; and to construct more general mechanisms restoring efficiency when this condition is not met.

Suggested Citation

  • Sylvain Carré & Franck Gabriel, 2022. "Efficiency and Security in DeFi Lending," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-04867554, HAL.
    • Handle: RePEc:hal:cesptp:hal-04867554
    Note: View the original document on HAL open archive server: https://hal.science/hal-04867554v1
    as

    Download full text from publisher

    File URL: https://hal.science/hal-04867554v1/document
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:cesptp:hal-04867554. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CCSD (email available below). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.