We explore the adoption of graph representation learning (GRL) algorithms to investigate similarities across services offered by Decentralized Finance (DeFi) protocols. Following existing literature, we use Ethereum transaction data to identify the DeFi building blocks. These are sets of protocol-specific smart contracts that are utilized in combination within single transactions and encapsulate the logic to conduct specific financial services such as swapping or lending cryptoassets. We propose a method to categorize these blocks into clusters based on their smart contract attributes and the graph structure of their smart contract calls. We employ GRL to create embedding vectors from building blocks and agglomerative models for clustering them. To evaluate whether they are effectively grouped in clusters of similar functionalities, we associate them with eight financial functionality categories and use this information as the target label. We find that in the best-case scenario purity reaches .888. We use additional information to associate the building blocks with protocol-specific target labels, obtaining comparable purity (.864) but higher V-Measure (.571); we discuss plausible explanations for this difference. In summary, this method helps categorize existing financial products offered by DeFi protocols, and can effectively automatize the detection of similar DeFi services, especially within protocols.
Bitcoin'in 2009 yılında ortaya çıkmasıyla birlikte, birçok sektör üzerindeki etkileri gözlemlenmiştir. Ancak, kripto para piyasalarındaki yüksek volatilite ve merkezi bir kontrol olmaması, kripto paraların geleceği konusunda belirsizlik yaratmaktadır. Bu anlamda, finansal sektörlerin dinamik yapısı gereği diğer sektörlerden daha hızlı etkilendikleri doğal olarak kabul edilmektedir. Bu araştırmanın temel amacı, Bitcoin, Ethereum, Litecoin ve Ripple gibi dört kripto para biriminin yatırım aracı olarak potansiyelini değerlendirmektir. Bu amaç doğrultusunda, 1 Ocak 2018 - 1 Ocak 2023 tarihleri arasında, seçili kripto para birimlerinin getiri oranlarının volatilite özellikleri modellenmeye çalışılmıştır. Otoregresif koşullu değişen varyans modelleri (Autoregressive conditional heteroskedasticity - ARCH) analizi kullanılarak yapılan çalışmada, modelin volatilite tahmininin anlamlı sonuçlar vermesi üzerine VAR analizi ve Granger nedensellik ilişkileri eklenerek desteklenmiştir. Bu testlerin sonucunda kripto para birimlerinin risk profili incelenmiş ve gelecekteki fiyat hareketlerine ilişkin bir tahmin sağlanması amaçlanmıştır. Bu şekilde, kripto para birimlerinin potansiyel bir yatırım aracı olarak değerlendirilmesi konusunda tespitler yapılarak literatüre katkıda bulunulmuştur. Bu bağlamda, serilerde ARCH etkisi gözlemlenmiştir. Yapılan VAR ve Granger Nedensellik testleri sonucunda, Bitcoin'deki bir değişikliğin diğer altcoin'leri önemli ölçüde etkilediği ancak Ripple'da anlamlı bir etkinin olmadığı sonucuna varılmıştır.
The rapid expansion of real-time payment networks—such as FedNow, the RTP network, and other instantsettlement infrastructures—has accelerated the pace of financial transactions but exposed structural limitationsin the underlying settlement processes. Current systems primarily rely on prefunded accounts, end-of-dayreconciliation, or deferred transfers of central bank reserves, creating liquidity fragmentation, intraday creditexposure, and operational inefficiencies. As transaction volumes grow and financial institutions demandcontinuous 24/7 settlement, these constraints inhibit scalability, resilience, and competition.This paper proposes a Blockchain-Enabled Real-Time Settlement Framework designed to enhance thesettlement capabilities of FedNow and other instant payment ecosystems. The framework leverages apermissioned distributed ledger to provide immutable, cryptographically verifiable, and atomic settlementfinality, while maintaining strict regulatory oversight and interoperability with existing payment rails. Byrepresenting central bank reserves or interbank settlement obligations as on-chain, regulator-supervised digitaltokens, institutions gain the ability to settle transactions instantly with reduced prefunding requirements andimproved liquidity efficiency
This paper introduces cryptocurrency into a two-country open-economy model. Based on the theoretical model, we employ the TVP-VAR model to study the dynamic interdependence among interest rate spread (a proxy in the monetary market), exchange rate (a proxy in the forex market), and Bitcoin transactions (a proxy in the cryptocurrency market). The key finding is that Bitcoin has an effect of de-fiatization in the global financial market. When there is a higher divergence in monetary policy between the US and China, Bitcoin attracts greater attention with a higher price, posing a competing force against USD. When there are greater fluctuations in the exchange rate of USD/CNY, Bitcoin diverts investors from CNY. The fiat currencies of the two largest economies are both losers while Bitcoin gains. Therefore, cryptocurrency not only decentralizes the role of commercial banks as a medium of payment, but also decentralizes the role of central banks as a monetary policymaker. In face of this challenge, it is suggested that central banks should embrace blockchain technology and develop their own digital currency to restore the trust lost in the global financial crisis. International collaborations in terms of regulation are necessary given its borderless and authority-less feature.
While still in their nascent stages, cryptocurrencies have the potential to reshape the international political economy by hastening the end of US dollar hegemony and reducing the US’s coercive financial power. Recently, governments have adopted various regulatory approaches to these new technologies. Most commonly, countries have implemented an array of partial and absolute bans. What explains governments’ responses to the new and potentially disruptive technology? We argue that governments’ decisions to ban cryptocurrencies stem from their desire to maintain monetary control. While cryptoization threatens all governments’ monetary policy autonomy, governments who choose to fix their exchange rates and restrict cross-border movement of capital are most motivated to ban crypto because digital currencies can be used to evade exchange and capital controls. A country’s regime type also affects its ability to enact bans; democracies will be less likely to enact a ban than autocracies. Our results suggest that cryptocurrency threatens the international political and economic status quo less than many speculate because regimes most likely to be at odds with US monetary and financial dominance face a strong incentive to ban the technologies in their own countries.
Decentralized finance is an innovative use of blockchain technology in financial services. Because of its transparency and lack of intermediaries, it brings several advantages to the traditional finance ecosystem. Features like tokenization, total value locked (TVL), oracles, and data aggregation help in building a variety of DeFi products and services. Decentralized apps (dApps) run autonomously atop distributed ledger networks. Decentralized stablecoins, decentralized exchanges (DEX), decentralized credit and lending, derivates, and even decentralized insurance are offered on DeFi platforms. The chapter takes through three forms of decentralized insurance models. Case studies and examples for successful and unsuccessful claims are explored. However, the implementation of DeFi comes with its challenges and regulatory hurdles. Similarly, governance and security aspects are of increased importance.
This chapter delves into the intricate world of 'ICOnomics', the economics underpinning Initial Coin Offerings (ICOs). We explore the evolution of ICOs, beginning from their rudimentary start in 2013-2014 to the more sophisticated, multimillion-dollar campaigns we see today. The analysis investigates the processes of ICOs, highlighting the importance of a comprehensive White Paper, effective marketing strategies, and the role of bounty programs. It assesses the design and timing of token sales, examining factors such as token distribution and pricing that influence an ICO's success. We delve into the economics of tokens, scrutinizing token types, inflation, and liquidity. Lastly, the chapter underscores the critical role of smart contracts, particularly those on Ethereum, in automating and securing ICO transactions. The chapter seeks to shed light on the success factors of ICOs and their continued evolution.
In this chapter, we delve into Decentralized Finance (DeFi) and Non-Fungible Tokens (NFTs) as emerging mechanisms for blockchain fundraising. We discuss the concept of DeFi, its key components, and how Decentralized Exchanges (DEXs) enable a novel form of blockchain funding - Initial DEX Offerings (IDOs). Additionally, we investigate NFTs, examining their evolution and diverse applications. The shift from Initial Coin Offerings (ICOs) and Initial Exchange Offerings (IEOs) to IDOs and NFTs is analysed, highlighting the increased security, transparency, and flexibility these mechanisms offer.
This research aims to empirically investigate the portfolio risk associated with crypto assets. In other words, we want to investigate whether the inclusion of crypto assets in a portfolio can minimize the portfolio risk or not, because it is argued that there is a lower degree of correlation between crypto assets and traditional assets. In order to achieve our research objectives, we employ the Vector Autoregressive Model (VAR) by using five different asset classes. The first two variables are taken from the crypto assets, Bitcoin and Ethereum, and the remaining three variables for Gold, Crude Oil and VIX (Chicago Board Options Exchange's (CBOE) volatility index). Our research strategy will be based on an analysis for unit root, optimal lag selection, coefficient matrix, checking VAR stability, the Granger causality test, and impulse response function (IRF). Our findings suggest that none of the indicators of traditional assets drive and explain Bitcoin. We also found that only Bitcoin is significantly related to Ethereum. while none of the other variables are statistically useful to explain the variation in the Ethereum. Based on these findings it can be recommended that the inclusion of crypto assets into a portfolio reduces risk because none of the indicators of crypto assets are significantly related to the indicators of traditional assets.
This study discusses the valuation and asset pricing of non-fungible tokens (NFTs), which are digital assets that represent unique items. The authors put forward a comprehensive framework for pricing NFTs and implementing asset pricing models in the NFT asset class. NFTs present a relatively difficult pricing problem, as the numerous idiosyncrasies of the NFT market have to be taken into account. The difficulties include the unique heterogeneous nature of NFTs, illiquid trading, limited data availability, high dimensionality of features relative to the available data, and the volatile time-varying price dynamics. The framework presented could potentially be expanded to the pricing of other “non-fungible” assets such as art, collectibles, and real estate.
By means of blockchain technology to shape an open, permission less, and decentralized financial environment, decentralized finance (DeFi) is upsetting the financial division. DeFi, at its essential, is a leaving from arrangements centralized financially by leveraging block chain technology to deliver a clear and unreliable environment. The essay demonstrations how the block chain’s decentralized, unchallengeable record conserves security, slide, and immutability while carefully investigative the basic thoughts of DeFi. This study delivers a complete overview of the main elements, problems, and future progressions in the decentralized financial interplanetary, highlighting the dangerous part of block chain technology. The education addresses basic concepts, important protocols, requests, and the resulting belongings of DeFi on old-style financial systems. There are problems along the way to normal receipt, though. Important problems like security anxieties, scalability subjects, and regulatory vagueness must be determined for DeFi to enlarge sustainably. The stress on block chain technology as an essential facilitator underlines the meaning of this technology's effect in determining the trajectory of decentralized finance.
Staking has emerged as a crucial concept following Ethereum’s transition to Proof-of-Stake consensus. The introduction of Liquid Staking Derivatives (LSDs) has effectively addressed the illiquidity issue associated with solo staking, gaining significant market attention. This paper analyzes the LSD market dynamics from the perspectives of both liquidity takers (LTs) and liquidity providers (LPs). We first quantify the price discrepancy between the LSD primary and secondary markets. Then we investigate and empirically measure how LTs can leverage such discrepancy to exploit arbitrage opportunities, unveiling the potential barriers to LSD arbitrages. In addition, we evaluate the financial profit and losses experienced by LPs who supply LSDs for liquidity provision. Our results show that 66% of LSD liquidity positions generate returns lower than those from simply holding the corresponding LSDs.
Purpose Free banking theory, as developed in Adam Smith’s 1776 treatise, “The Wealth of Nations” is a useful tool in determining the extent to which the “invisible hand of the market” should prevail in regulatory policy. The purpose of this study is to provide a timely review of the literature, evaluating the theory’s relevance to regulation of financial technology generally and cryptocurrencies (cryptos) specifically. Design/methodology/approach The methodology is qualitative, applying free banking theory as developed in the literature to technology-defined environments. Recent legislative developments in the regulation of cryptocurrencies in the UK, European Union and the USA, are drawn upon. Findings Participants in volatile cryptocurrency markets should bear the consequences of inadvisable investments in accordance with free banking theory. The decentralised nature of cryptocurrencies and the exchanges on which these are traded militate against coordinated oversight by central banks, supporting a qualified free banking approach. Differences regarding statutory definitions of cryptos as units of exchange, tokens or investment securities and the propensity of these to transition between categories across the business cycle render attempts at concerted classification at the international level problematic. Prevention of criminality through extension of Suspicious Activity Reporting to exchanges and intermediaries should be the principal objective of policymakers, rather than definitions of evolving products that risk stifling technological innovation. Originality/value The study proposes that instead of a traditional regulatory approach to cryptos, which emphasises holders’ safety and compensation, a free banking approach combined with a focus on criminality would be a more effective and pragmatic way forward.
Abstract A general question about the cryptoeconomy and decentralized finance (DeFi) is whether these new ecosystems rely on different mechanisms or are rather an imitation of the existing traditional economic and financial paradigms. In trying to answer this question, this chapter proposes the new label of crypto shadow banking. This chapter analyses the main characteristics of crypto shadow banking and identifies specific commonalities with the shadow banking system, specifically at the level of financial institutions and financial products. Finally, this chapter considers the systemic risks associated with crypto shadow banking and posits some policy considerations to address such risks. In particular, this chapter concludes that a better understanding of crypto shadow banking is essential to design some ex ante policy response, based on the problems experienced with traditional shadow banking. These ex ante measures may be helpful to mitigate the risks related to potential financial shocks and financial crises.
Abstract This chapter provides an analysis of initial coin offerings, their development in the market, and their role in shaping the development of the cryptoeconomy. It identifies the initial ICO ‘structural’ pattern and its subsequent evolutions. It then characterizes ICOs in three major jurisdictions—the United States, Europe, and Switzerland. Furthermore, this chapter considers specific unsolved issues as they emerged in the markets and legal systems. In doing so, it focuses on the lack of a definitive approach for regulating ICOs, as well as on specific promises that ICOs breached, in particular with respect to financial inclusion, disintermediation, and infrastructural transformations. Finally, this chapter identifies the main consequences brought by ICOs, with an emphasis on capital market structures and digital securities, which triggered multiple transformations at multiple levels, including corporate governance, development of digital assets, and non-fungible tokens.
This paper provides the first analysis of non-fungible token (NFT) collection liquidity by applying a suite of widely used proxies that capture different dimensions of liquidity. Using transaction-level data from the OpenSea marketplace, manipulative trades are flagged and two novel methodologies for calculating liquidity are applied before performing a family of regressions to investigate its dynamics. I find that collection-specific attributes directly account for both NFT-specific liquidity idiosyncrasies and the impacts of manipulative trading. Following robustness tests, I identify that this collection-level power only exists in bull markets, similarly to real estate ZIP-code groupings. Finally, the estimated models reveal a non-linear liquidity pattern across a collection’s lifetime, with successful collections dipping in liquidity before recovering quickly. This paper deepens our understanding of how liquidity operates at the collection level in NFTs, offering findings for liquidity researchers in non-fungible asset markets.
Cross-Border-Payments have grown in economic importance over the last few decades as international mobility of goods, services, capital, and people has increased. Some estimate that the value of cross-border payments will increase by ${\$}$100 trillion over the next ten years. This is why cross-border payments are such an intriguing and important issue. Cross-border payments are more difficult than domestic payments. The challenges are speed – slower transactions – cost – high remittance access – difficult to keep track – and low transparency. So, there is clearly a need to improve cross-border payments and bring them up to speed with domestic payments. The presence of corresponding banking networks is one of the key factors slowing down this process. The introduction of blockchain to this system could help solve some of the previously discussed issues by lowering costs, increasing transparency, and decreasing time. Blockchain has been making a noise for quite some time now because of its distributed ledger property and it is widely talked about by financial sectors such as Banks. Many of the financial sectors have setup innovation labs to conduct proof of concepts to show its harmless uses of blockchain. Industries studies have revealed that regulatory and compliance problems are the two biggest major issues provided resistance for the adoption of blockchain. To overcome these issues, we used a DATA layer, due to this regulatory and compliance requirements around the detail of transaction for validating the details of sender and receiver. The number of suspicious transactions could be minimized as there would be transparency during the network.
The rise of decentralized finance (DeFi) has fundamentally reshaped the financial industry, challenging traditional banking systems and opening up a world of possibilities in global finance. This chapter explores the multifaceted impact of DeFi on the global economic landscape, addressing critical themes through a series of subtitles. DeFi is disrupting traditional banking models by offering alternative financial services directly on blockchain networks, such as lending, borrowing, and trading. One of the remarkable achievements of DeFi is its ability to provide financial services to previously underserved and unbanked populations. Tokenization is a crucial aspect of DeFi, enabling the representation of real-world assets as digital tokens on the blockchain. DeFi offers numerous advantages but poses security challenges, including smart contract vulnerabilities and hacks. This chapter provides an overview of the major themes and implications of DeFi's influence on finance, highlighting its opportunities and challenges.
Stablecoins are increasingly important in decentralized finance (DeFi) and crypto asset markets, and their prominence has led to greater scrutiny of their unique role as expressions of the U.S. dollar running on blockchain networks. Stablecoins attempt to perform a mechanically complex function – to remain pegged to the dollar, even during periods of market volatility.
With the expansion of digitalization into the financial sector, emerging technology has also demonstrated new applications within the traditional financial system. This rapid change in the financial system was not limited only to the applications in the central financial system and the emergence of financial assets, but then steps were taken to the decentralized financial system. The aim of this study is to examine the Decentralized Finance (DeFi) system, which has emerged as an independent alternative to the traditional finance system, and to reveal the opportunities and threats in this field. In this context, the focus was first on the traditional central financial system, which consists mostly of banking and financial institutions. Then, digital assets, cryptocurrencies, FinTech and RegTech which are the antecedents of decentralized finance system were explained. This study examines DeFi, an independent and pioneering technology, highlighting its distinctive features and explaining the opportunities and threats it presents. While the important opportunities emerging with DeFi are accessibility, globality, cost effectiveness and transparency, the main threats are listed as exclusion of the central financial system, volatility, legal problems and security risk.
This study provides a comprehensive analysis of Decentralized Finance (DeFi) within the U.S. economy, focusing on its rise, challenges, and implications. The primary objective is to unravel the concept of DeFi, delineate its role in the U.S. financial landscape, and explore its historical evolution from traditional to blockchain-based finance. Employing a systematic literature review and content analysis, the study synthesizes data from academic journals, industry reports, and regulatory publications. The methodology involves a meticulous selection process, adhering to specific inclusion and exclusion criteria to ensure the relevance and quality of the literature. Key findings reveal that DeFi, underpinned by blockchain technology and smart contracts, offers innovative financial services, enhancing inclusivity and efficiency. However, it faces challenges such as regulatory uncertainties, security concerns, and scalability issues. The study highlights the significant impact of DeFi on the U.S. economy, including technological advancements, economic integration, and regulatory shifts. It also underscores the implications for various stakeholders, including investors, institutions, and regulators. The future landscape of DeFi is poised for growth, marked by technological innovations and potential integration with traditional financial systems. The study concludes with recommendations for industry stakeholders and policymakers, emphasizing the need for clear regulatory frameworks, enhanced security protocols, and consumer education. Future research directions include exploring DeFi's integration with emerging technologies and its role in addressing global financial challenges. This study contributes to the academic discourse on DeFi and offers insights for policymakers, investors, and financial institutions navigating this evolving landscape.
Decentralized autonomous organizations (DAOs) represent a novel technology progress that could potentially challenge conventional organizations in terms of management and making choices. This chapter provides an introduction to decentralized finance (DeFi), situates DeFi within the framework of the conventional financial industry, establishes a connection of peer-to-peer transactions, and concludes with a discussion on policy implications. Decentralization has the capacity to weaken conventional mechanisms of accountability and diminish the efficacy of established financial regulations and enforcement. This study presents a thorough analysis of the current status of research on DAOs, highlighting the most important research areas and relevant works in the subject. Furthermore, it examines the performance of prominent decentralized finance in relation to these research areas, providing valuable observations on their real-world implementations and efficacy.