Peng‐Fei Dai, John W. Goodell, Luu Duc Toan Huynh, Zhifeng Liu · 5 authors
Abstract We evidence that cryptocurrencies have a higher probability of crashes than equity indices, although such crashes are of shorter duration. Commonality of crash risk between cryptocurrency and equity markets occur in approximately 80% of the periods examined. Further, recently evolved cryptocurrency uncertainty indices are more relevant for predicting co‐crash behavior than economic policy uncertainty. Results are consistent with cryptocurrencies being a growing source of financial instability.
We explain the mechanics of smart contracts. We then highlight the benefits of smart contracts, such as overcoming commitment problems. We also discuss limitations, such as the difficulty for smart contracts to access information external to the blockchain and the difficulty of integrating smart contract code with traditional legal enforcement. We further highlight how the absence of a trusted intermediary inflates implementation costs for blockchain applications. We conclude with a discussion of the most prominent smart contract applications in decentralized finance: token issuance (e.g., initial coin offerings, nonfungible tokens), decentralized exchanges, and protocols for loanable funds. Our survey covers both institutional details and relevant literature.
Kunjian Song, Nedas Matulevicius, Eddie B. de Lima Filho, Lucas C. Cordeiro
Smart contracts written in Solidity are programs used in blockchain networks, such as Etherium, for performing transactions. However, as with any piece of software, they are prone to errors and may present vulnerabilities, which malicious attackers could then use. This paper proposes a solidity frontend for the efficient SMT-based context-bounded model checker (ESBMC), named ESBMC-Solidity, which provides a way of verifying such contracts with its framework. A benchmark suite with vulnerable smart contracts was also developed for evaluation and comparison with other verification tools. The experiments performed here showed that ESBMC-Solidity detected all vulnerabilities, was the fastest tool, and provided a counterexample for each benchmark. A demonstration is available at https://youtu.be/3UH8_1QAVN0.
Smart contract is an important component of blockchain platform to realize transactions,which provides an effective solution to the trust problem between multi-party transactions.Smart contracts not only manage high value tokens but also have the characteristics of immutable,which lead to the security threats of smart contracts many times in recent years.At present,a lot of researches have devoted to the security of smart contracts,among which the vulnerability detection of smart contracts has become the main concern.This paper analyzes the security of smart contract systematically.From the perspective of whether to execute the smart contract,vulnerability detection tools are divided into static detection tools and dynamic detection tools.In particular,the vulnerability detection ability of existing detection tools is analyzed,and the principles,advantages and disadvantages of 16 detection technologies are discussed.Finally,the paper gives a prospect of how to improve the security of intelligent contract,and puts forward three research directions which may improve the security of smart contract.
In this paper, I examine the effect of the May 18th, 2021 Chinese ban of cryptocurrency transactions on the overall volatility of the cryptocurrency market. To do this, I analyze, in both univariate and multivariate settings, range-based volatility in various event windows surrounding the event. I find clear economic and statistical change in volatility in the five days after the ban. In the ten-day period after the ban, there is a moderate economic change in volatility. In the forty-day period after the ban, there is little economic change in volatility. I conclude that the Chinese ban had a clear short-term impact on the volatility of the cryptocurrency marketplace, but the effects wore off shortly thereafter.
Saha Reno, Sheikh Surfuddin Reza Ali CHOWDHURY, Iqramuzzaman SADI
Lending systems in real world are not much secure and reliable as the borrower and third parties involved in this aspect may create various deceitful situations. Blockchain is a secure system where the utilization of smart contract can avoid deceptive phenomena involved in lending but the decline in exchange rate of cryptocurrency can create the opportunity to pay back less than the borrowed amount in terms of fiat money. In this paper, a blockchain and smart contract-based lending framework is designed which requires the borrower to provide Ethereum Request for Comments (ERC)-20 standard tokens as collateral to mitigate the associated risks. The smart contract feature is utilized to automate the system without any third-party management. Besides, transaction stored in the blocks creates transparency among the users of the system. To tackle the aforementioned issues, ERC-20 token value is increased periodically and the instability of the exchange rate is surveilled by the system. By the end of this paper, some test cases and charts relevant to the data set are evaluated to assess the effectiveness of the system.
Alexander Fleiss, Gihyen Eom, Daria Tikhonova, Eric Tu
We compare the explainability of cryptocurrency returns from macro and microeconomic risk factors during stressed and normal market environments, in particular, analyzing the effects of the Covid-19 pandemic to cryptocurrency return explainability. We find that risk-premiums are encapsulated within cryptocurrency-specific market factors in both stressed and normal market conditions. Furthermore, cryptocurrency factors, particularly relating to liquidity, momentum, and counterparty risk, showed evidence of providing stronger predictability of cryptocurrency returns during the Covid-19 pandemic compared to pre-pandemic levels. We find that during the stressed market environment, Fama-French 5 factors continue to provide low explainability to cryptocurrency returns.
The extensive use of financial technologies and innovations in the provision and utilization of financial products and services causes new risks that require constant attention. The article aims to improve innovation risk management methods to increase the operational stability of financial institutions in Ukraine. By generalizing international practice, the types of innovation risks are classified, and their impact on the activities of financial institutions and consumers is characterized. The attention is drawn to the control strengthening over the impact of operational and regulatory risks, based on important theoretical provisions contained in WBG, BIS, BCBS, and FSB documents. An organizational scheme for the interaction of a financial institution and an IT company is proposed to conclude “smart contracts” based on the use of a cloud service and blockchain technology. The authors propose additional methods of insurance protection and compensation for losses caused by the implementation of risks of using ICT and innovation based on creating the Collective Risk Insurance Fund of financial institutions; offer approaches to the calculation of variable and fixed parts of the contribution to the insurance fund for certain groups of financial institutions. It is concluded that to maintain the proper operational stability of financial institutions in Ukraine, it is necessary to introduce additional collective compensation methods for the risks of innovation and the strengthening of cyber threats.
Real-time financial settlements constrain traders to have the cash on hand before they can enter a trade [Khapko and Zoican, 2017]. This prevents short-selling and ultimately impedes liquidity. We propose a novel trading protocol which relaxes the cash constraint, and manages chains of deferred payments. Traders can buy without paying first, and can re-sell while still withholding payments. Trades naturally arrange in chains which contract when deals are closed and extend when new ones open. Default risk is handled by reversing trades. In this short note we propose a class of novel financial instruments for zero-risk and zero-collateral intermediation. The central idea is that bilateral trades can be chained into trade lines. The ownership of an underlying asset becomes distributed among traders with positions in the trade line. The trading protocol determines who ends up owning that asset and the overall payoffs of the participants. Counterparty risk is avoided because the asset itself serves as a collateral for the entire chain of trades. The protocol can be readily implemented as a smart contract on a blockchain. Additional examples, proofs, protocol variants, and game-theoretic properties related to the order-sensitivity of the games defined by trade lines can be found in the extended version of this note [Danos et al., 2019]. Therein, one can also find the definition and game-theoretic analysis of standard trade-lines with applications to trust-less zero-collateral intermediation.
How might modern settlement systems with distributed ledger technology achieve zero settlement risk? We consider the design of settlement systems that satisfies two integral features: information-leakage proof and zero settlement risk. Legacy settlement systems partition private information but are vulnerable to settlement fails. A token system with dynamic ownership representation, or a dynamic ledger, can be designed to achieve both, as long as it employs a protocol that enforces two restrictions: programs must be immediately implemented and must involve transactions based on verifiable claims. We show how such a system can support various arrangements, including insurance, derivatives, collateralized loans, and securitization.
With the rapid development of contemporary technology, people are not only satisfied with the economic benefits brought by the traditional financial industry. In 2009, a currency incorporating blockchain Bitcoin was born, thus kicking off the cryptocurrency trend. In this paper, the historical development and status of the cryptocurrency market will be discussed first, including an introduction to the cryptocurrency market as a whole and a detailed description of the major currencies. Secondly, it discusses the various cryptocurrency disruptions in the year 2021, with musk as the key opinion leading the cryptocurrency price trends. Then, it analyzes the factors that affect the value of cryptocurrencies, including supply and demand, public perception and relationship with other currencies, and the value of cryptocurrency investments and future price trends. The regulation of cryptocurrencies is also reviewed. Policies from different countries is firstly discussed, and following this article talks about the impact of different regulation policies on the cryptocurrency market. The prediction for the future regulation tendency is also included. In addition, this study focuses on the case of the Republic of El Salvador's adoption of bitcoin as legal tender, feasibility, risks, and advantages and disadvantages of bitcoin as legal tender.
Hedge strategies are used with different terms to evaluate whether the co-movement between the U.S. stock market and Bitcoin can be used to optimize the portfolio. As for the representative stock indexes, we construct long-term and short-term hedge portfolios of the S&P 500 and NASDAQ with Bitcoin based on the least variance hedging view. It turns out that long-term hedges are less effective than short-term hedges. To further test the correctness of the conclusion, in the context of the recently enacted and implemented double-reduction policy, we take the market value as the weight, select 5 stocks with large market value to build a portfolio, and hedge them with Bitcoin for a week. The conclusion was still in line with our expectations. By testing the feasibility of hedge between U.S. equity and Bitcoin, this research can provide investors with effective investment ideas and reveal the essence of hedge: the assets of the two hedges should have similar volatility.
O escopo central do presente estudo consiste em investigar algumas perspectivas (e os correlatos riscos e dificuldades) de incorporação da inteligência artificial e dos smart contracts para a regulação convencional do risco contratual. Tal empreitada parte da investigação das perspectivas de a gestão do risco contratual por intermédio da inteligência artificial ocorrer, entre outras manifestações, ora pela sua utilização para a delimitação inicial de elementos das prestações a cargo das partes, ora para a revisão das suas prestações diante de superveniências contratuais. Analisam-se, por fim, algumas repercussões dos smart contracts sobre a execução contratual e, em especial, sobre a atuação dos remédios ao inadimplemento. Para tanto, o presente estudo adota o método lógico-dedutivo, a partir do exame bibliográfico da doutrina nacional e, a título ilustrativo, da doutrina estrangeira.
The salience theory of choice under risk shows that investor behavior drives cross-sectional cryptocurrency returns. Investors place too much weight on salient payouts, causing overvaluation of cryptocurrencies with upward salience returns and undervaluation of those with downward salience returns, leading to negative expected returns for the former and positive expected returns for the latter. The salience effect in the cryptocurrency market is more pronounced than in equity markets, making it a significant risk factor for explaining other cross-sectional returns in the cryptocurrency market. Unlike other documented return predictors, the salience theory uniquely contributes to understanding the cryptocurrency market. Video Abstract: https://youtu.be/F8BxhDWW7b4.
ABSTRACT: We study the ability of hedge funds to restructure target firms. A purchase of at least 3% of a target firm’s stake is subject to a 13D SEC Filing in the US. We use these filings to investigate the impact of such transactions in the period 2009–2020. Our method of choice is the event study approach. We set the event on the date of the transaction and compute cumulative abnormal returns (CARs) within a specified event window. Based on accounting metrics, such as return on equity and return on assets, we study how restructuring impacts target company’s capital structure. Based on SEC Section 13G filings, we are further able to distinguish between acquisitions with active and passive aims. We find that firms targeted for active purposes achieve higher abnormal returns and overall higher performance. We further look on the impact of the overall stock-market cycle on abnormal returns. We find that the level of abnormal returns for actively targeted companies remains higher with no regard to the market cycle. Based on these findings, we draw conclusions on the overall impact of hedge fund activism. KEY WORDS: Hedge funds, Shareholder Activism, Abnormal Returns, Event study, Restructuring
Insurance is a big financial market with a high-risk high-gain margin. But the insurance system existing in the current scenario has a lot of dependencies both on the Insurance provider as well as the consumer. With its distributed ledger, smart contracts, and non-repudiation capabilities, blockchain is revolutionizing the way financial organizations do business, and the insurance industry is no exception. Through blockchain this system can be optimized to reduce costs and the middlemen dependency involved, by managing information in a smarter way. The main idea is to establish a peer to peer system of consensus for claiming insurance without the hassle of involving insurance surveyors or other non-involved parties.
Technologists have argued that cryptocurrencies and blockchains will revolutionize our lives. Many have suggested that blockchain is the single biggest technological innovation since the internet itself. It will “democratize finance” and “disintermediate big tech” among other societal improvements. Yet adoption of blockchain has been underwhelming, and it has largely failed to live up to these lofty expectations. One significant reason for this is that the digital assets that underpin blockchains such as Bitcoin and Ether are often not secure, as the industry has been rife with hacks and scams. The emerging market for Digital Asset Insurance may provide the necessary backstop to make the asset safe enough for broader adoption. This article provides an overview of the relevant technology, outlines the state of the digital asset insurance industry, and discusses how the insurance integral to the broader blockchain ecosystem.
Climate insurance is already a hot topic due to the increased number of climate-related catastrophic events accompanied by associated losses for the economy in general and insurance companies, in particular. The extremely hot and dry summer of 2018 in some European countries highlighted existing weaknesses of the agricultural insurance mechanisms in Europe, where the farmers had to wait for months before compensation payments could bemade. Our paper aims to compare features of the yield-based insurance2and the index-based insurance (IBI)3in agriculture in the light of new developments and trends in information technologies (IT). The results show that an application of the distributed ledger technologies (DLT) in combination with IBI could not only resolve existing problems, but also facilitate development of the innovative insurance mechanisms at the EU level –providing effective protection against climate-related risks and preventing a systemic risk escalation
Security of payment (SOP) issues still persist in the construction industry despite numerous investigations and incremental reforms. Various solutions and policies have been proposed and analysed in-depth in previous studies. However, limited studies have focused on the integration of advanced technologies to address SOP issues. The aim of this research is to develop a comprehensive framework that integrates practical advanced technologies to address SOP issues in the construction industry. A concurrent mixed-method design was adopted to (a) identify the industry's perspective on what advanced technologies can be accepted to address SOP issues through a questionnaire survey, and (b) identify the use of advanced technologies through a live construction project as a case study. Subsequently, a data flow diagram framework was developed to articulate the whole process flow of how the system delivers automatic payments to subcontractors upon the completion of their contractual obligations and work done. This research contributes new and practical insights into the application and integration of smart sensors, oracles, BIM, blockchain technology and smart contracts in addressing SOP issues in the construction industry.
Digitalization in finance is an irreversible process, which manifests itself in many different dimensions. Blockchain is an innovative technology that can significantly increase the operational effectiveness of key processes in the financial services industry by reducing costs, enhancing the security and transparency of transactions, and speeding up the settlement process. The idea of smart contracts’ implementation in blockchain is suitable for financial transactions, where a link between fulfilling contractual terms and performing actual transactions is established. The ‘’blockchain - smart contract’’ combination forces the execution of all transactions in accordance with the contract terms and leaves a door, wide open for the automation of key processes. What makes using a ‘smart contract’ beneficial is its ability to eliminate mediation from third parties, such as agents or trustees. The invasion of digital technology is expected to bring dramatic changes in the nature of financial intermediation. This research paper is focused on assessing the expected degree of blockchain penetration and its impact on selected key segments of the financial industry (e.g. global payments, trade finance, capital market trading, syndicated lending, insurance and compliance). Barriers and challenges to the new application’s wide spreading are also analyzed. Based on this research, conclusions about the expected degree of applicability of blockchain in the financial sphere are drawn, and proposals for the initial steps in this direction are made.