Blockchain Papers

Tobias C. Hoschka

No abstract is available for this record.

Augustin Valéry

No abstract is available for this record.

Dale Satre

Global finance is redefining grand strategy and influence in the 21st century. There is no practical alternative today that has the scale to challenge the U.S.-led financial system. With it, American influence has been projecting its strategic goals through sanctions, causing unease among international friends and foes alike, applying a pressure referred to as “weaponized interdependence.” However, state-backed digital currencies, developed for efficiency and financial inclusion, are now being considered around the world as a defense against being cut off from the global financial system—and by extension American sanctioning power. This paper will analyze the concept of weaponized interdependence in payment systems, the British financial empire as a historical precedent for it, and how America came to inherit this enviable position. This paper will also analyze what central bank digital currencies (CBDCs) are, the challenge they pose to American financial power, and offer an initial down payment on policy solutions that policymakers may consider to preserve American financial power.

Timothy Dombrowski, V. Carlos Slawson

Can the general structure of a mortgage-backed security (MBS) contract be programmatically represented through the use of decentralized autonomous organizations (DAOs)? Such an approach could allow for the portfolio of loans to be managed by investors in a trustless and transparent way. The focus and scope of this paper is to explore the potential for applying the tools of modern fintech, such as asset tokenization, smart contracts, and DAOs, to reconstruct traditional structured products that have a greater degree of transparency and traceability. MBS investors face considerable value uncertainty as time increases between the actual occurrence (or non-occurrence) of cash flows and subsequent reporting. Given that an MBS is a financial contract, it should be expressible logically using the Algorithmic Contract Types Unified Standards (ACTUS). Since each underlying mortgage in an MBS derives its cash flows in a prescribed way over the life of the contract, implementation on a public blockchain could enable real-time ratings systems, improving market efficiency. We explore the potential for creating formal algorithmic designs of MBS-DAOs that incorporate individual mortgages, the underlying real estate assets (collateral), and any loan guarantees.

Bin Liu, Tina Prodromou, Sandy Suardi, Caihong Xu

No abstract is available for this record.

Sabrina Leo, Andrea Delle Foglie, Luca Barbaro, Edoardo Marangone · 6 authors

Credit Guarantee Schemes (CGSs) are crucial in mitigating SMEs' financial constraints. However, they are renownedly affected by critical shortcomings, such as a lack of financial sustainability and operational efficiency. Distributed Ledger Technologies (DLTs) have shown significant revolutionary influence in several sectors, including finance and banking, thanks to the full operational traceability they bring alongside verifiable computation. Nevertheless, the potential synergy between DLTs and CGSs has not been thoroughly investigated yet. This paper proposes a comprehensive framework to utilise DLTs, particularly blockchain technologies, in CGS processes to improve operational efficiency and effectiveness. To this end, we compare key architectural characteristics considering access level, governance structure, and consensus method, to examine their fit with CGS processes. We believe this study can guide policymakers and stakeholders, thereby stimulating further innovation in this promising field.

Rocco Francesco Vittorio Di Terlizzi

In recent years, Decentralized Autonomous Organizations (DAOs) have advanced significantly, transforming organizational operations through blockchain technology by replacing traditional hierarchical management with community-driven decision-making via smart contracts. Despite early skepticism and regulatory challenges, DAOs have evolved into various forms, particularly Investment DAOs, which facilitate pooled asset management and democratize investment opportunities across sectors such as Web3 and real estate tokenization. Given this evolution, a comprehensive financial framework is urgently needed to address the specific governance structures of DAOs. Traditional financial metrics like the Current Ratio, Cash Flow Management, and Liquidity Coverage Ratio (LCR) must be adapted to the unique dynamics of decentralized organizations, promoting a deeper understanding of financial health and operational efficiency while ensuring transparency and accountability. As DAOs now manage treasuries exceeding $40 billion, robust financial oversight is essential. Integrating traditional accounting principles with blockchain’s transparency can revolutionize financial reporting, risk management, and governance, enabling stakeholders to make informed decisions and fostering trust and collaboration within the DAO ecosystem. This fusion of accounting methods and technology will not only enhance internal governance but also ensure sustainable growth. In conclusion, the increasing prominence of DAOs within the financial landscape highlights the need for forward-looking financial structures that blend established accounting practices with cutting-edge technological solutions, ensuring their continued success in a rapidly changing environment.

Abhishek Sharma

This paper explores the transformative impact of Decentralized Finance (DeFi) on traditional financial institutions, offering novel insights into how blockchain-based financial systems are reshaping the global economy. By leveraging smart contracts and distributed ledger technology, DeFi eliminates intermediaries, democratizing access to financial services and enabling more transparent, efficient, and inclusive financial ecosystems Decentralized Finance (DeFi) represents a paradigm shift in the financial landscape, offering an alternative to traditional financial institutions by leveraging blockchain technology and smart contracts. This paper explores the disruptive potential of DeFi in areas such as banking, lending, trading, and asset management. Through a decentralized and transparent framework, DeFi applications aim to eliminate intermediaries, reduce transaction costs, enhance security, and provide financial inclusivity. The study examines key DeFi protocols, challenges like regulatory uncertainties and security vulnerabilities, and their implications on the global financial system. The findings suggest that while DeFi holds transformative potential, achieving widespread adoption requires addressing scalability, security, and regulatory hurdles. The paper concludes by assessing DeFi's role in shaping the future of finance, emphasizing its potential to democratize financial services and challenge traditional models of operation. Unique contributions of this research include the introduction of a comprehensive framework that evaluates DeFi protocols across multiple dimensions, such as security, scalability, and user adoption. Additionally, the paper provides a comparative analysis of traditional finance and DeFi mechanisms, emphasizing key advantages like reduced transaction costs, enhanced financial inclusion, and decentralized governance models. Furthermore, this study uncovers novel insights into potential risks, including regulatory challenges, and proposes innovative strategies for mitigating these risks. Ultimately, the paper highlights DeFi’s potential to redefine financial infrastructure while also acknowledging the hurdles that must be overcome for widespread adoption.

Carmen Toderaşcu, Vlad Gabriel NICOLĂESCU

In this article, we discuss the potential of Web3 in the context of decentralized finance (DeFi). Web3, as the new generation of the internet and new approaches, comes with a decentralized architecture and increased security through the use of blockchain technology. These characteristics make Web3 a suitable environment for DeFi, which is a decentralized financial system based on blockchain technology and smart contracts to provide financial services. DeFi eliminates the need for intermediaries in financial transactions and can provide access to financial services globally, even for those who do not use traditional financial instruments. We address the various aspects of DeFi that are possible through the use of Web3, such as payments, loans, and digital asset exchanges. We also aim to address how Web3 can solve some of the current issues facing DeFi, such as scalability and interoperability. Additionally, we discuss the regulatory perspective, how these new financial systems bring and create new risks, and what the management tools for these risks can be from two perspectives: financial stability and the protection of consumers/investors, and financial education as a proactive element of self-management of increasingly complex new financial concepts. DeFi is one of the most innovative and exciting applications of blockchain technology that can transform and improve the global financial system. However, DeFi is still in its early stages and faces certain challenges, such as scalability and interoperability between different DeFi platforms. Web3 can play a significant role in addressing these challenges by creating a decentralized environment that can facilitate value transfer and interconnectivity between different DeFi platforms. Web3 can also enhance the security and transparency of DeFi platforms by leveraging blockchain technology and smart contracts. The emergence of DeFi also brings new risks and challenges, particularly in terms of regulation and consumer protection. Financial authorities must adopt a proactive approach to regulate these new financial systems and ensure their stability and security, while also promoting financial education and awareness among consumers and investors

David Krause

No abstract is available for this record.

Daniel Liebau

No abstract is available for this record.

Vincent Gramlich, Tobias Guggenberger, Marc Principato, Benjamin Schellinger · 6 authors

Identities are an essential aspect of information systems (IS) as they allow users of a digital ecosystem to interact, build trust, and form relationships. Decentralized finance (DeFi) is a digital, blockchainbased ecosystem that has seen tremendous growth in the last years, however, it struggles with current identity implementations.While academics and practitioners have identified numerous implications, a scientific systematization of the role of identities in DeFi and their potentials and challenges is missing.By conducting a multivocal literature review, we rigorously gather the current knowledge and aggregate the different perspectives and concepts to present (I) a comprehensive conceptualization of identities in DeFi, (II) their potentials and challenges, and (III) concepts to manage the tension in between.Thereby, we aim to lay a foundation for future research on identities that increase DeFi's security, efficiency, and adoption while minimizing or eliminating the drawbacks for data privacy and censorship.

Kirti Sood, Vishal Sharma, Rajesh Kumar

The present study aims to map the existing intellectual structure on Decentralized Finance (DeFi) risks.The study utilizes the systematic literature review (SLR) method to identify DeFi risks and the Scopus database to retrieve the pertinent literature.Further, authors select 50 research articles through abstract and title scanning, complete text analysis, and citation chaining to perform content analysis.Using content analysis, the present study identifies 21 DeFi risks segregated into four categories, namely technical, macro-economic, legal and regulatory, and user-centric risks.Additionally, the study provides unique research directions for the future.Hence, the present study contributes to the DeFi literature and has practical implications for DeFi entrepreneurs, individuals, developers, programmers, and policymakers.The study is the first of its kind that consolidates pertinent risks related to DeFi using the SLR method and broadens the knowledge of stakeholders in the DeFi ecosystem.

Gülcihan Aydaner, H. Aydın Okuyan

Abstract DeFi blockchain technology, known as decentralized finance today, separates from the traditional financial ecosystem and ushers the new financial landscape onto digital platforms. In decentralized financial applications, all digital assets are safeguarded by blockchain technology. Thanks to this technology, investors can transfer their financial assets without being dependent on banking authorities. Despite the numerous advantages they bring, financial assets based on the decentralized finance ecosystem come with certain disadvantages. These assets are difficult to control, easily manipulated, and are at risk due to their vulnerability to cyberattacks. This study conducted bibliometric analyses on a total of 930 publications registered in the Web of Science (WoS) and Scopus databases using the VOSviewer program. In both databases, “all fields” were filtered and scanned with the keyword “decentralized finance.” According to the results, the Scopus database has much richer content compared to the WoS database. The most cited author in the Scopus database was Chen Y, while in the WoS database, it was Nakomoto S. There has been a significant increase in the number of publications in both databases since 2020. Additionally, it was detected that the most cited countries in both databases were the USA, China and England, respectively. It has been observed that computer science comes to the fore in the publication rankings. Decentralized finance is an interdisciplinary field of study. Therefore, many more qualified hybrid studies are needed. More studies are needed, especially examining investor behavior. The analyses presented in this article will enable researchers to grasp the bigger picture from a holistic perspective.

Walter Hernandez Cruz, Firas Dahi, Yebo Feng, Jiahua Xu · 6 authors

Automated Market Maker (AMM)-based Decentralized Exchanges (DEXs) are crucial in Decentralized Finance (DeFi), but Ethereum implementations suffer from high transaction costs and price synchronization challenges. To address these limitations, we compare the XRP Ledger (XRPL)-AMM-Decentralized Exchange (DEX), a protocol-level implementation, against a Generic AMM-based DEX (G-AMM-DEX) on Ethereum, akin to Uniswap's V2 AMM implementation, through agent-based simulations using real market data and multiple volatility scenarios generated via Geometric Brownian Motion (GBM). Results demonstrate that the XRPL-AMM-DEX achieves superior price synchronization, reduced slippage, and improved returns due to XRPL's lower fees and shorter block times, with benefits amplifying during market volatility. The integrated Continuous Auction Mechanism (CAM) further mitigates impermanent loss by redistributing arbitrage value to Liquidity Providers (LPs). To the best of our knowledge, this study represents the first comparative analysis between protocol-level and smart contract AMM-based DEX implementations and the first agent-based simulation validating theoretical auction mechanisms for AMM-based DEXs.

Donia Aloui, Riadh Zouaoui, Houssem Rachdi, Khaled Guesmi · 5 authors

In this paper, we investigate non-linear linkages between Bitcoin and the unconventional monetary policies of the European Central Bank (ECB). In particular, we examine whether a low-interest rate environment resulting from QE indirectly encourages investors to move towards Bitcoin. Using a Bayesian VAR model with time-varying coefficients and stochastic volatility (TVP-BVAR-SV model), we compare Bitcoin’s responses to the shadow rate shocks during the pre-and post-COVID-19 periods. Moreover, despite the high uncertainty and the low-interest rate environment, Bitcoin's response during the COVID-19 period reveals a steeper drop compared to the pre-COVID-19 period. That said, investors did not resort to Bitcoin for safety and higher returns. Our findings can be attributed to the unprecedented nature of the crisis, the investor reluctance and pessimism, and the changing behavior of Bitcoin, which is no longer perceived as a safe haven.

Sergio Luis Náñez Alonso, Miguel Ángel Echarte Fernández, David Sanz Bas, Cristina Pérez Pérez

ABSTRACT The objective of this article is to analyze the two most important monetary laws that have been implemented in El Salvador, namely the Monetary Integration Law (MIL) and the Bitcoin Law. The most important articles of both laws will be analyzed, as well as the consequences of dollarization, and the possible advantages and risks associated with the adoption of Bitcoin as legal tender. Although this measure may have some positive aspects by encouraging financial innovation and facilitating remittances, the macroeconomic risk is very high due to the volatility of this cryptocurrency. So far no positive results have been achieved as the acceptance has been very low and there has been a depreciation of the asset in recent months.

Anastasia Tsareva, Yash Madhwal, Yury Yanovich

In this paper, we analyze the decentralization features of Central Bank Digital Currencies (CBDCs) and evaluate the limitations of Distributed Ledger Technology (DLT) benefits in this context. Our research explores the essential characteristics of consensus algorithms, including security, finality, and efficiency, for CBDCs and considers the trade-off between transaction throughput and decentralization. After examining various options, we conclude that Proof of Work (PoW) and Proof of Stake (PoS) are unsuitable for CBDCs. However, Proof of Authority (PoA), Delegated Proof of Stake (DPoS), and Notary Services are promising alternatives. Our findings reveal that while CBDCs possess some decentralization components in their architecture, they still maintain political and logical centralization due to regulation by the Central Bank. Consequently, CBDCs can only partially leverage all the benefits of DLT, such as the ability to withstand challenges, which still depend on the Central Bank as the sole point of failure. This paper aims to equip policymakers with valuable insights to make informed decisions regarding the design of CBDC consensus algorithms.

Nir Chemaya, Lin William Cong, Emma Joergensen, Dingyue Liu · 5 authors

Decentralized Finance (DeFi) is revolutionizing traditional financial services by enabling direct, intermediary-free transactions, thereby generating a substantial volume of open-source transaction data. This evolving DeFi landscape is particularly influenced by the emergence of Layer 2 (L2) solutions, which are poised to enhance network efficiency and scalability significantly, surpassing the existing capabilities of Layer 1 (L1) infrastructures. However, the detailed impact of these L2 solutions has been somewhat obscured due to a dearth of transaction data indices that can provide in-depth economic insights for empirical research. This study seeks to address this critical gap by conducting a comprehensive analysis of raw transactions sourced from Uniswap, a central decentralized exchange (DEX) within the DeFi ecosystem. The dataset encompasses an extensive collection of over 50 million transactions from both L1 and L2 networks. Additionally, we have curated a wide-ranging repository of daily indices derived from transaction trading data across prominent blockchain networks, including Ethereum, Optimism, Arbitrum, and Polygon. These indices shed light on crucial network dynamics, such as adoption trends, evaluations of scalability, decentralization metrics, wealth distribution patterns, and other key aspects of the DeFi landscape. This rich dataset serves as an invaluable tool, enabling researchers to dissect the complex interplay between DeFi and Layer 2 solutions, thus enhancing our collective understanding of this rapidly evolving ecosystem. Its notable contribution to the data science pipeline includes the implementation of a flexible, open-source Python framework, enabling the dynamic calculation of decentralization indices, customizable to specific research requirements. This adaptability makes the dataset particularly suitable for advanced machine learning applications, including deep learning, thereby solidifying its role as a critical asset in shaping Blockchain as the foundational infrastructure for the intelligent Web3 ecosystem.

Nir Chemaya, Lin William Cong, Emma Jorgensen, Dingyue Liu · 5 authors

Decentralized Finance (DeFi) is reshaping traditional finance by enabling direct transactions without intermediaries, creating a rich source of open financial data. Layer 2 (L2) solutions are emerging to enhance the scalability and efficiency of the DeFi ecosystem, surpassing Layer 1 (L1) systems. However, the impact of L2 solutions is still underexplored, mainly due to the lack of comprehensive transaction data indices for economic analysis. This study bridges that gap by analyzing over 50 million transactions from Uniswap, a major decentralized exchange, across both L1 and L2 networks. We created a set of daily indices from blockchain data on Ethereum, Optimism, Arbitrum, and Polygon, offering insights into DeFi adoption, scalability, decentralization, and wealth distribution. Additionally, we developed an open-source Python framework for calculating decentralization indices, making this dataset highly useful for advanced machine learning research. Our work provides valuable resources for data scientists and contributes to the growth of the intelligent Web3 ecosystem.

Aleksander Essex, Shin’ichiro Matsuo, Oksana Kulyk, Lewis Gudgeon · 9 authors

No abstract is available for this record.

Esmaeel Hafezi, Reza Najarzadeh, Hassan Heydari, Seyed Shamseddin Hosseini

In international trade and financial exchanges, global cryptocurrencies have a prominent and effective role.In this paper, using the KOF index, the structure of financial globalization is extracted and the effect of the expansion of global cryptocurrencies is examined in the two components: Foreign Direct Investment and Portfolio Investment.The Ordinary Least Squares (OLS) model has been used separately for 2020, 2021, and 2022 to analyze the results of the expansion of global cryptocurrencies in the foreign direct investment component.Also, the price changes of Bitcoin and Ethereum from March 10, 2016, to the end of December 2022 have been used to investigate the effect of global cryptocurrencies in portfolio investment by applying Modern Portfolio Theory (MPT).Also, according to the availability of data in research sources, the data of 111 countries have been used.OLS estimated results suggest that the adoption and expansion of global cryptocurrencies has no significant relationship with Foreign Direct Investment.Also, using MPT, the results of portfolio optimization suggest that global cryptocurrencies improve the effectiveness of the selected portfolios, and with the same corresponding returns, the risk of the portfolios including global cryptocurrencies decreases as well.Therefore, the results emphasize the role of global cryptocurrencies in financial globalization only as crypto-assets.

Thomas Hardjono, Alexander Lipton, Alex Pentland

In order for tokenized asset networks to be accountable as Web3 marketplaces for token-related transactions, identity verification must be conducted by gateways into those token networks. This includes the identity validation and legal status verification of the originators and beneficiaries, the gateway owners/operators, and other relevant service providers. The classic identity provider model could be enhanced to support anti-money laundering regulations, notably the Travel Rule. A privacy-preserving IdP model in combination with a legal service provider is explored where the IdP becomes the issuer of a blinded attestation regarding the user attribute, and where the legal representative with attorney-client privilege becomes the first point of contact for requests for the disclosure of the blinded attestations.

Natkamon Tovanich, Myriam Kassoul, Simon Weidenholzer, Julien Prat

We study financial contagion in Compound V2, a decentralized lending protocol deployed on the Ethereum blockchain. We explain how to construct the balance sheets of Compound's liquidity pools and use our methodology to characterize the financial network. Our analysis reveals that most users either borrow stablecoins or engage in liquidity mining. We then study the robustness of Compound through a series of stress tests, identifying the pools that are most likely to set off a cascade of defaults.