Decentralized Finance (DeFi): A Review and Research Agenda

Abstract

Decentralized finance (DeFi) has emerged as a significant financial innovation, using blockchain technology and smart contracts to replicate and expand traditional financial services without intermediaries. This review synthesizes the literature across seven dimensions: token financing, trading and liquidity, cryptocurrency as an asset class, governance, risk, monetary system implications, and infrastructure. We identify several key findings: tokens solve coordination problems but face design trade-offs; cryptocurrency markets exhibit distinct risk factors, yet most price volatility reflects beliefs rather than fundamentals; decentralization is partial and endogenous, with concentration emerging in mining, staking, and governance; novel risks including stablecoin fragility and MEV extraction require new frameworks; and infrastructure constraints shape feasible applications. We conclude by proposing directions for future research.