Deceptive Assurance? A Conceptual View on Systemic Risk in Decentralized Finance (DeFi)

Abstract

The Decentralized Finance (DeFi) ecosystem has recently been touted as a potential replacement for the existing financial system, with the monetary equivalent in this ecosystem based on various token concepts and infrastructural protocols. However, questions remain regarding the systemic risk of this ecosystem, and closer examination reveals interesting parallels to the concept of systemic risk in established financial systems. There is a need for research to examine important additional dimensions in relation to DeFi. This paper addresses systemic risk in DeFi, presenting the first holistic research framework on the topic, as well as the first empirical indications in order to create foundations for further research.