Behavioral economics of decentralized finance: Biases behind the decision-making in trustless environments

Abstract

Decentralized Finance (DeFi) is rapidly growing, promising to make financial services more open and efficient. The prospect of DeFi mass adoption has attracted attention in recent economic research. This literature review examines how users respond to DeFi, evaluating whether large-scale adoption is feasible in the current environment. It focuses on behavioral biases – herding, investor attention, fear of missing out, momentum, and sentiment – that contribute to market fragility and inefficiency. The findings indicate that while DeFi offers promising solutions to some challenges of traditional finance, its current state remains unprepared for mass adoption. However, as research in this area is still emerging and blockchain technology continues to advance, DeFi retains significant potential for future development.