Modelling and Simulation of Cryptocurrency Lending

Abstract

Depositing and borrowing in a currency other than the local currency is a well- documented phenomenon. The associated exchange rate and monetary risks, pivotal during the Asian Financial Crisis of 1997, prompted an academic discourse. Financial dollarization literature explains why individuals and corporations domiciled in emerg- ing markets deposit and borrow in hard currencies, mainly in U.S. dollars. This thesis proposes a model for cryptocurrency lending and assesses model predictions with a data set containing more than one million Ethereum transactions. The computational modelling and statistical analysis show that the main theoretical explanations provided by financial dollarization literature may not be directly transferable to cryptocurrencies. The results suggest that the popularity of depositing and borrowing in cryptocurrencies must be largely motivated by other factors.