We model endogenous trading and liquidity provision at a decentralized exchange (DEX) and demonstrate that increasing DEX trading fees can increase DEX trading volume. DEXs employ a mechanical pricing rule whereby price impacts decrease with inventory that DEXs acquire by offering fee revenues to investors. Consequently, higher DEX fees can incentivize higher inventory, thereby reducing price impacts. Moreover, the reduction of price impact can offset the increase in fees so that the marginal cost of DEX trading declines despite charging a higher trading fee. In turn, lower DEX marginal trading costs lead to an increase in DEX trading volume. This paper was accepted by Agostino Capponi, finance.
K. R. Mahesh Kumar, Sujay Mugaloremutt Jayadeva, P. Selvakumar, Raj Kumar Mishra ¡ 6 authors
Digital currencies, also referred to as cryptocurrencies or virtual currencies, represent one of the most transformative developments in the financial and technological landscapes over the past decade. Unlike traditional fiat money issued and regulated by centralized governments and central banks, digital currencies operate on decentralized networks using blockchain technologyâa distributed ledger system that ensures transparency, security, and immutability of transactions. This fundamental shift from physical cash and conventional banking systems to digital, cryptographically secured money has profound implications not only for economics and finance but also for marketing, commerce, and consumer behavior. The concept of digital currency first gained widespread attention with the introduction of Bitcoin in 2009, created by an anonymous entity known as Satoshi Nakamoto. Bitcoin's revolutionary design combined peer-to-peer networking and cryptographic proof to enable trustless digital transactions without the need for intermediaries.
This chapter examines money laundering as the systematic process of disguising illicit proceeds to make them appear legitimate, focusing on how repeated laundering patterns reveal organized criminal networks. The analysis covers the three-stage process of placement (introducing illegal funds into financial systems), layering (obscuring origins through complex transactions), and integration (reintroducing laundered funds as legitimate assets). Key modus operandi variables include the use of shell companies, structuring transactions to avoid reporting thresholds, trade-based manipulation, and exploitation of cash-intensive businesses. The chapter provides comprehensive detection indicators across six categories: transaction monitoring, customer behavior, geographic patterns, digital assets, trade anomalies, and lifestyle inconsistencies. Emerging threats through decentralized finance (DeFi) platforms and non-fungible tokens (NFTs) demonstrate how criminals adapt to new technologies while maintaining recognizable operational patterns. A case study of a $263 million cryptocurrency laundering scheme illustrates how money laundering interconnects with broader criminal enterprises including cyber theft, fraud, and violent crime. The chapter emphasizes that effective pattern recognition requires analyzing multiple indicators in combination, tracking recurring variables across time and jurisdictions, and understanding that money laundering is rarely an isolated crime but rather the financial backbone enabling sustained criminal activity.
This dissertation investigates the economic and behavioral foundations of decentralized finance (DeFi) where lending, borrowing, and rate discovery are executed by smart contracts rather than traditional financial institutions. Through three complementary essays, it analyzes the design of decentralized credit protocols, the formation of interest rates in decentralized markets, and the fundamental and behavioral drivers of DeFi token valuation.The first essay examines the Atlendis protocol, which enables non- or partially-collateralized lending by combining off-chain underwriting with on-chain execution. The second develops a theoretical model of decentralized rate discovery based on a multi-unit game framework, identifying the conditions for efficiency and the frictions specific to these markets. The third provides an empirical analysis of DeFi token returns, showing that investor sentiment, liquidity dynamics, and behavioral factors play a significant role in price formation alongside economic fundamentals.By bridging financial engineering, theoretical modeling, and empirical research, this thesis sheds light on how DeFi reshapes intermediation, price formation, and governance in a transparent, programmable financial environment.
AbstractContemporary blockchain architectures face a critical impasse defined herein as the "Tetra-Lemma"âa four-dimensional optimization problem comprising decentralization, security, scalability, and thermodynamic sustainability. Proof-of-Work networks confront diminishing security budgets due to the exhaustion of block subsidies, while Proof-of-Stake systems risk validator centralization. This paper establishes a Unified Monetary-Supply Framework that resolves these structural conflicts by synthesizing the deterministic "Customized Halving" schedule with the probabilistic regeneration logic of the Proof of Rinne (PoR). We demonstrate that by enforcing a "Thermodynamic Statute of Limitations" on dormant assets, the protocol functions as a Non-Equilibrium Thermodynamic Engine. This architecture transforms entropic asset attritionâtraditionally viewed as systemic lossâinto a regenerative security budget. Using Rincoin as a case study, the model proves that a high-frequency blockchain can maintain a deflationary supply curve while anchoring the effective circulation at a permanent target equilibrium, offering a rigorous blueprint for a closed-loop, regenerative digital economy over a secular horizon. Key Quantitative Findings Asymptotic Convergence: While the effective circulating supply may experience a temporary peak (approx. 27 million RIN), the Dual-Layer Temporal Architecture ensures stabilization below the 21 million threshold (specifically converging to 20.88 million RIN). Perpetual Stability: Beyond the initial mining and transition phases (spanning 443â703 years), the PoR mechanism ensures the indefinite maintenance of the effective circulating supply. This transcends the finite lifecycle of traditional PoW assets by establishing a permanent, self-sustaining regenerative cycle. Thermodynamic Equilibrium: Mathematical verification of the "Golden Ratio" between Reserve, Unrecovered Loss, and Actual Circulation (approx. 77 : 70 : 21). Publication StatusThis manuscript (v1.6.1) serves as the foundational theoretical framework for the Rincoin protocol. Future iterations will formalize the consensus mechanisms required to govern these algorithmic parameters. Integrity & Provenance ArchitectureThe scientific integrity and existence of this document are secured by a Triple-Verification Layer: 1. Academic Provenance: Indexed via Zenodo (DOI: 10.5281/zenodo.17141922). 2. Thermodynamic Timestamping: Anchored to the Bitcoin blockchain via OpenTimestamps. 3. Identity Assurance: Digitally signed by the author via a third-party certification authority (GMO Sign). Note: Verification data and the "Certificate of Authenticity" are available in the supplementary files. CorrespondencePrimary Author: Michiru Tokino (also known as Aevust in the decentralized infrastructure community). Academic Inquiries: edu@aevust.org Community Governance: @aevustus (Discord) / @aevust (X/Telegram) Keywords: Rincoin, Proof of Rinne (PoR), non-equilibrium thermodynamic engine, phase transition of value, dual-layer architecture, customized halving, thermodynamic statute of limitations, regenerative crypto-economics, blockchain tetra-lemma.
This chapter examines the current inefficacious condition of cross-border payments and the challenges they pose to users and oversight authorities. In particular, it analyses the causes and implications of the ongoing decline in correspondent banking. It distills the Building Blocks in the G20 Roadmap to Cross-Border Payments , the progress made at the transnational level in their implementation, and the remaining obstacles. The discussion encompasses recommendations that are exploratory in nature, including the feasibility of new multilateral cross-border payment platforms and arrangements, the soundness of global stablecoin arrangements, and factoring an international dimension into the design of central bank digital currencies (CBDCs). The chapter suggests that, while the G20 Roadmap is comprehensive, it lacks certain elements, including the potential for utilising distributed ledger technology (DLT) to enhance the efficiency, speed, and safety of cross-border payments. It draws on theories of technology and innovation adoption to analyse DLT adoption for cross-border payments and the regulatory approach that should be taken to facilitate its use. Alongside the benefits of stimulating economic growth and enhancing financial inclusion over the long term, it explores the regulatory, legal, and institutional barriers that DLT infrastructure may present for cross-border payments.
The rapid growth of stablecoins has introduced novel forms of systemic risk to the global financial system, fundamentally challenging traditional notions of financial stability. This perspective paper examines the conditions under which stablecoins may become âtoo big to failâ and analyzes the unique risks posed by algorithmic and decentralized autonomous organization (DAO)-based models. Through comprehensive examination of the Terra Luna/TerraUSD (UST) collapse, Silicon Valley Bank's impact on USDC, and other significant stablecoin failures, we identify critical thresholds for systemic importance and propose an enhanced framework for assessing systemic risk in digital currency ecosystems. Our analysis reveals that traditional metrics of systemic importance inadequately capture the interconnectedness, velocity-driven risks, and reflexive mechanisms inherent in algorithmic stablecoin systems .
ABSTRACT Stablecoins attract academic interest because of their valueâpegging mechanisms and price stability. This likely results in distinct market efficiency. This study compares stablecoins (USDC, Tether, Dai) with Bitcoin and Ethereum and assesses long memory through the Hurst exponent while addressing distortions caused by heavy tails and extreme events. Through shuffled and rankâorder series with a slidingâwindow approach, we provide the first reliable timeâvarying analysis. The results show that stablecoins exhibit inefficiency and antiâpersistence, with Tether being relatively more efficient. Their tail properties are highly sensitive to extreme events. In contrast, Bitcoin and Ethereum maintain stable weakâform efficiency even during the COVIDâ19 pandemic. These differences are linked to stablecoins' US dollar pegging mechanisms and regulatory constraints. The findings of this study enable comparisons of market efficiency between stablecoins and unpegged cryptocurrencies and offer insights for regulation and investment decisions.
Persistent double-digit inflation, sharp currency depreciation, and eroding confidence in domestic monetary institutions have led many households in emerging markets to search for assets outside the control of national authorities. Bitcoin, the largest cryptocurrency by market capitalization, is frequently described as "digital gold" and a potential inflation hedge, yet empirical evidence remains mixed, particularly for chronically highinflation economies. This paper examines whether Bitcoin functions as an inflation hedge in Argentina and Turkey, two emerging markets characterized by persistent inflation, currency depreciation, and divergent cryptocurrency regulatory regimes, over the period January 2018 to August 2025. Using monthly data on local-currency Bitcoin returns, changes in inflation, and exchange-rate depreciation obtained from TradingEconomics.com, the study estimates baseline and extended Ordinary Least Squares (OLS) regressions for each country. The baseline results show a statistically insignificant, negative relationship between inflation and Bitcoin returns in Turkey, and a small but statistically significant positive relationship in Argentina. Once exchange-rate depreciation and global Bitcoin returns are introduced as controls, the explanatory power of both models rises sharply (R² â 0.99 in each country), while the coefficient on inflation becomes negligible and statistically insignificant in both cases. These findings suggest that Bitcoin behaves primarily as a currency-depreciation hedge and a vehicle tracking global cryptocurrency market sentiment, rather than as a direct hedge against domestic inflation. The results carry implications for investors, policymakers, and households evaluating Bitcoin's role in high-inflation, capital-constrained economies.
Official lending is large, senior, and countercyclical, continuing after sovereigns fall into arrears on private debt. We ask why sovereign finance exhibits this division of labor across creditors. In a production economy where a risk-averse sovereign privately allocates imported inputs, commitment is limited on both sides, and monitoring generates a noisy signal, the constrained-optimal allocation is decentralized by defaultable private debt, senior nondefaultable multilateral debt, and concessional bilateral debt whose relief is tied to the signal. Production remains distorted, but the sovereign is never excluded: official lending is monitored liquidity provision. A calibration reproduces procyclical private and countercyclical official debt.
Money serves several roles: a medium of exchange to buy and sell without bartering; a unit of account to price goods consistently; a store of value to save purchasing power over time; a means to defer payment of future obligations like credit or loans. An agent based computer simulation program determine quantitatively the relative importance of these services. The main results showed that money for credit was by far the feature that achieved the largest overall production of wealth in the simulated societies. A conclusion from this study suggests that fomenting the use of internationally tradable currencies such as Bitcoin seems to be most promising pathway for international economic growth in the near future.
We develop an agent-based model in which inflation emerges from decentralized price-setting and credit-financed production in an endogenous-money economy. Firms operate under working-capital constraints, form market-based price expectations through heterogeneous adaptive learning, and set prices via cost-plus rules with endogenous mark-ups. Bank lending simultaneously creates deposits, while heterogeneous lending rates and credit rationing shape firms' financing costs and, through unit costs, their pricing decisions. The economy features interacting production and credit networks: intermediate-input linkages propagate cost shocks across supply chains, while bank--firm relationships transmit financial conditions across firms. The interaction of network-based pass-through, state-dependent pricing incentives, and evolving credit conditions generates inflationary regimes, including episodes driven by pricing cascades and feedback loops.
Emerging economies face a sharp version of a general dilemma: permissionless decentralized finance imposes compliance and usability costs that regulated institutions and ordinary users cannot absorb, while central bank digital currency pilots typically foreclose composability and independent development. We present the design of a sovereign hybrid blockchain -- open and composable within a national perimeter, closed and governed with respect to the outside world -- and evaluate it as an implemented system. The design enforces identity beneath the contract layer, separates a native settlement asset from pluggable tokenized local-currency instruments, routes all outbound value through a single governed gateway, and distributes institutional powers across smart contracts. We instantiate it as a permissioned Avalanche Layer-1 and evaluate its central claim against two unmodified production protocols, Uniswap V2 and Aave V3, deployed from published upstream artifacts on a live chain. Both run without source modification, and compliance holds wherever the regulated asset itself moves. But the claims these protocols issue against the asset carry none of its rules. Pool shares and interest-bearing deposit receipts reach addresses holding no identity attestation and no permission to transact; the lending receipt accrues, and the protocol computes a borrowing entitlement for an address the identity registry does not recognise. Base-layer identity enforcement secures custody of an asset, not exposure to it. We further report that a sovereign fee policy set for inclusion forecloses standard interoperability tooling, that a parent-chain fee balance halts the chain silently, and that redeploying the contract suite partitions the compliance perimeter rather than replacing it.
Monetary theory has historically focused on the objectives of moneyâstability, coordination, and value preservationâwhile leaving the execution of monetary policy largely dependent on discretionary institutions or static rule-based systems. This paper argues that the absence of a formal execution layer constitutes a structural gap in modern monetary systems. We introduce IntelliFi (Intelligent Finance) as a general framework for the intelligent execution of monetary theory. IntelliFi treats money not as a static object or purely institutional construct, but as a closed-loop control system in which issuance, incentives, stabilization mechanisms, and policy enforcement are executed through adaptive, feedback-driven, constraint-bound, and verifiable processes. Unlike traditional fiat systems, which rely on human discretion, or algorithmic monetary systems, which rely on rigid pre-commitments, IntelliFi formalizes monetary execution as a bounded optimization problem governed by explicit constitutional constraints. Intelligence, in this context, is defined not as autonomy or artificial decision-making, but as systematic responsiveness to observable economic signals within non-negotiable limits. The paper presents a formal definition of IntelliFi, outlines its execution model, and identifies the necessary and sufficient conditions for a monetary system to qualify as IntelliFi-compliant. Existing monetary regimesâincluding commodity money, fiat systems, cryptocurrencies, decentralized finance protocols, and governance-based systemsâare examined as partial or proto-executions of IntelliFi principles. By separating monetary theory from its execution and formalizing execution as a first-class economic problem, this work reframes how monetary systems can be designed, evaluated, and governed. IntelliFi is presented not as a new currency or policy prescription, but as a general purpose framework for implementing monetary theory in adaptive, transparent, and resilient ways.
⢠DeFi stablecoin yields track FFR/SOFR, but with a distinct T+3 structural lag. ⢠A settlement-friction framework links fiat rails to the T+3 transmission lag. ⢠The lag is universal for both compliant USDC and offshore, unregulated USDT. ⢠Basis regressions reveal a predictable settlement wedge after policy moves. ⢠Robust tests rule out protocol outliers, macro trends, and weekend artifacts. Decentralized Finance (DeFi) stablecoin markets increasingly function as a shadow overnight dollar system, yet the speed at which U.S. monetary policy transmits to on-chain yields remains unclear. Focusing on the recent âHigh-for-Longâ regime (2023â2025), I study this pass-through using daily Aave V3 deposit rates for USDC and USDT. Guided by a simple conceptual framework of settlement frictions and arbitrage constraints, I estimate an ordered VAR that controls for equity- and crypto-market cycles. The results show that DeFi yields are tightly anchored to the Federal Funds Rate (and, in robustness, SOFR), challenging the âcrypto-decouplingâ narrative. However, transmission exhibits a distinct T+3 structural latency, universal across both compliant USDC and unregulated USDT, indicating an infrastructural, systemic friction rather than issuer-specific constraints. Robustness tests, alternative-explanations analysis, and quantity-based mechanism checks rule out protocol outliers, broader macro trends, and weekend artifacts, supporting an interpretation based on delayed settlement and execution across fiat rails. Complementary basis regressions provide a direct pricing implication: the on/off-chain spread exhibits a significant, predictable wedge during the settlement window that dissipates thereafter. The findings imply that despite algorithmic immediacy, DeFi remains constrained by fiat infrastructure, and that improving on-chain capital efficiency may require modernizing payment rails alongside issuer-focused regulation.
The DebreuâKoopmans theorem [14] restricts separable aggregation to at most one nonconvex component. We solve this by proving that a separable (additive or multiplicative) function is star quasiconvex (those with star-shaped sublevel sets about minimizers) if and only if each component is star quasiconvex. This immediately yields star quasiconvexity of separable sums of quasiconvex functions, formally bridging diversification theory with the S-shaped value functions of Prospect Theory. Furthermore, we develop a complete calculus (monotonic composition, pointwise minima, quasi-arithmetic means) and we apply it to Cobb-Douglas functions, multi-factor risk models, and constant function market makers in decentralized finance. Star quasiconvexity thus provides a unified framework for economic modeling beyond the classical DebreuâKoopmans constraint.
Decentralized finance and stablecoin systems rely Stablecoins increasingly incorporate freeze, pause, and blacklist mechanisms to satisfy regulatory, compliance, and risk-management requirements. However, these controls introduce a critical temporal vulnerability when enforcement actions compete with transaction finality. This paper defines <b><i>Stablecoin Freeze Race Conditions</i></b> as a class of failures in which transfers, redemptions, or collateral movements execute successfully during the latency window between risk detection and freeze enforcement. We analyze how asynchronous control paths enable value escape even in fully permissioned stablecoins and demonstrate why governance authority alone is insufficient. A validator-level, logic-layer enforcement model is proposed to ensure atomicity between risk triggers and monetary state transitions under MiCA-aligned frameworks.
This note examines the role of 'tokenization' of monetary deposits-holding them on programmable, decentralized ledgers-in achieving automated, real-time processing of financial transactions. It compares this with the alternative of automated processing on conventional account-based centralized ledgers. It finds that the only use case which require such 'tokenized' monetary deposits are in realtime pre-funded financial trading of financial assets (along the same lines as the prefunded trading in decentralized finance). Here the 'tokenized' deposits must be 100% reserved to support settlement between institutions. All other use cases can be equally well supported using conventional account-based centralized ledgers. Programmability and automation can be equally well implemented with either architecture. For most use cases (the principal exception is global corporate cash management) the incentives for adoption are likely to be stronger with conventional centralized rather than decentralized architecture. JEL codes: E42, G21, G23, O33
Reinganum (1986) argued informally that inexpensive time travel would drive nominal interest rates to zero. We formalise that claim in a dated-commodity model built on a Lewisian distinction between calendar time and personal time. Costless two-way transport of dollars across dates makes dated dollars technologically interchangeable, so the law of one price implies a zero nominal risk-free rate. The same logic does not carry over unchanged to native on-chain Bitcoin. A Bitcoin position is a holder-relative control claim over a specific unspent transaction output (UTXO) in the realised blockchain history. A valid dates immediate control claim requires the output already to exist in the dates chain prefix, to be unspent there, and to satisfy all applicable script, witness, timelock, and maturity conditions. Future-created outputs cannot generally be transported backwards. Same-date substitution into older outputs is history-dependent and capacity-constrained; exercise changes the single realised history rather than creating duplicate purchasing power. We define a Bitcoin-denominated zero-coupon claim as a promise of generic native settlement at a later date and give a two-date no-arbitrage counterexample with a non-zero Bitcoin-denominated interest rate. The substantive Bitcoin result is an incompatibility result: no single native on-chain Bitcoin object is simultaneously generic across outputs, immediately exercisable as native settlement, and universally transportable across calendar dates. A restricted same-output law of one price survives for dormant control bundles over already-existing outputs, but that result is too narrow to force Bitcoin-denominated rates to zero in general.