Blockchain Papers

Ilan Alon, Andreas Sauge Berthelsen, Espen Bjellerås, Bernardo Silva-Rêgo

No abstract is available for this record.

Alexander Karaivanov, Shayan Zarifian

We analyse the economic determinants and dynamics of transaction fees in the Ethereum blockchain before and after two significant platform updates. The first is the August 2021 EIP-1559 ‘London’ upgrade, a switch from user-bid gas price (transaction fee per unit of complexity) to a fee model in which the gas price is the sum of an algorithmically determined base fee and an optional priority fee (tip) chosen by the user. The second update (‘the Merge’) is the switch from proof-of-work to proof-of-stake transactions validation in September 2022. We estimate the impact on Ethereum transaction fees of both demand factors (block utilization, transaction type, ETH price in USD) and algorithmic supply-side factors (the block gas limit and base fee). Using data from nearly 900 million blockchain transactions, we find that the gas price is statistically significantly positively associated with the block utilization rate. A larger share of contract call transactions or legacy (user-bid gas price) transactions is linked with higher gas prices on average. On the supply side, a higher block gas limit is statistically significantly associated with lower gas prices.

Minh Hong Nguyen, Binh Nguyen Thanh, Huy Pham, Thi Thu Tra Pham

Decentralized lending in the DeFi ecosystem mirrors traditional financial intermediation but poses significant risks, particularly funding liquidity risk, due to the volatility and composbility of digital assets, high leverage, and the absence of regulatory protections. This study applies traditional financial intermediation theories to DeFi lending and empirically test which internal factors such as interest rates and user market power, as well as external factors like the USD Index, influence funding liquidity risk in DeFi lending. Analyzing high-frequency blockchain data using the ARDL model and a novel dynamic ARDL simulation from major pools such as Wrapped Bitcoin (WBTC) and Wrapped Ethereum (WETH), the research finds that current algorithmic interest rate models fail to function as effective self-stabilization mechanisms. Additionally, lower deposit concentration in these pools may exacerbate, rather than mitigate, funding liquidity risk.

Daniel Hoang, Sebastian Gatzer, Martin Ruckes

We analyze a unique chief financial officer (CFO) survey data set to examine capital allocation in firms. Top management is aware of agency and information problems at the divisional level and organizes the budgeting process to counteract managerial opportunism, employing systems of interconnected measures, including layers of approval, divisional budgets, reporting requirements, and compensation schemes. When making funding decisions, top management relies heavily on top-level nonfinancial information, such as the assessment of divisional managers’ abilities. However, substantial parts of the capital budget do not require top management approval as firms trade off the benefits and costs of decentralization, thereby deviating from the traditional paradigm of decentralized project initiation but centralized project approval. Even firms with active internal capital markets tilt capital allocation toward relatively even distributions, reflecting the use of capital allocation as a credible communication device. We also find that within-firm agency problems may result in capital rationing, that is, divisions’ restricted access to internal capital. CFOs also believe that integrating multiple businesses into an internal capital market results in tangible financial benefits, predominantly lower costs of capital and higher debt capacities. Thus, our findings also support coinsurance arguments suggesting that internal capital markets may improve access to external financing. This paper was accepted by Victoria Ivashina, finance. Funding: This work was supported by the BBBank Karlsruhe, Wissenschaftsförderung der Sparkassen-Finanzgruppe, and Karlsruher Institut für Technologie (Karlsruhe House of Young Scientists). Publishing fees were supported by the “Funding Programme Open Access Publishing” of the University of Hohenheim. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2021.02755 .

Yuanyuan Liu, Bingrui Huangfu, Zheng Qiao, Zhao Xi

No abstract is available for this record.

Lennart Ante

We investigate the motivations behind non-fungible token (NFT) ownership. Utilizing survey data from NFT owners, we identify four distinct groups based on their primary motivations: (1) Utilizers, who emphasize functional uses; (2) Socializers, motivated by community and networking; (3) Speculators, focused on profit potential; and (4) Aesthetes, who appreciate artistic and cultural aspects. Our analysis indicates that individual traits such as risk-taking, impulsivity, and investment knowledge significantly influence group membership. These findings suggest that NFT users are a diverse cohort with varied motivations rather than a homogeneous group.

Rajinder Minhas, Ashutosh Dwivedi

The governance of corporate has to be exemplary. Corporate, as a separate legal entity with limited liability in most cases, derives its corpus from varied shareholders and in consequence, it is obligated that the affairs of such a person are to be commanded with upkept trust. But it is alarmingly strange that there are testimonial facts to prove that corporate as a person failed, when the custodian of the trust themselves betrayed it. Yes, it cannot be denied that the fraudulent acts are belligerent and shakes the conscience of one and make the scene susceptible for a thorough proof. It is also understandable that in a duty- fiduciary, if there is done any negative to the interest of anyone in the stake, it is criminal and not acceptable at all! To target such mentalities of the vested, an alarm has been raised in this paper.

Thomas Bourveau, Janja Brendel, Jordan Schoenfeld

Abstract Decentralized finance (DeFi) has emerged to offer traditional financial services such as lending, borrowing, and trading without intermediaries (e.g., banks). DeFi transactions are typically executed using a special digital class of contracts called smart contracts. These contracts are self-executing and hard-coded directly on a blockchain. We observe the emergence of a new class of voluntary audits that evaluate the integrity of these contracts. Using a hand-coded sample of about 8,500 smart contract audit reports, we provide some of the first evidence showing that (1) these audits are pervasive, (2) the audit firm market is composed of new technical audit firms, (3) the scope of these audits can span a variety of contract features, (4) the audit inputs and outputs differ substantively from those of conventional financial audits, and (5) the market reacts positively to the release of these audit reports, suggesting that these reports are value-relevant. These findings highlight the demand for novel assurance services driven by blockchain technology.

Abe Alexander, Lars Fritz

In the ever evolving landscape of decentralized finance automated market makers (AMMs) play a key role: they provide a market place for trading assets in a decentralized manner. For so-called bluechip pairs, arbitrage activity provides a major part of the revenue generation of AMMs but also a major source of loss due to the so-called 'informed orderflow'. Finding ways to minimize those losses while still keeping uninformed trading activity alive is a major problem in the field. In this paper we will investigate the mechanics of said arbitrage and try to understand how AMMs can maximize the revenue creation or in other words minimize the losses. To that end, we model the dynamics of arbitrage activity for a concrete implementation of a pool and study its sensitivity to the choice of fee aiming to maximize the revenue for the AMM. We identify dynamical fees that mimic the directionality of the price due to asymmetric fee choices as a promising avenue to mitigate losses to toxic flow. This work is based on and extends a recent article by some of the authors.

Shiqi Chen, Bart M. Lambrecht

Legal scholars highlight the tensions that exist between different classes of shareholders in startups. We model a startup owned by undiversified investors with heterogeneous capital contributions and risk preferences. A social planner runs the firm on behalf of all investors. We compare investors’ expected utility with a hypothetical first-best decentralized benchmark. The startup’s optimal investment policy is procyclical and a time-varying weighted average of shareholders’ optimal investment policies. The optimal contracts issued to investors are tailor-made, interdependent, and include equity claims resembling preferred stock with heterogeneous payout caps, leading to a complex capitalization table as more investors join the startup. This paper was accepted by Will Cong, finance. Funding: This work was supported by the Cambridge Endowment for Research in Finance and Keynes Fellowship. Supplemental Material: The online appendices and data files are available at https://doi.org/10.1287/mnsc.2022.01724 .

Sampad Sikder, Mashiat Amin Farin, Md. Ariful Islam, Tahlil Tahlil · 5 authors

Decentralized finance (DeFi) is an emerging technology that empowers individuals to manage their assets without relying on centralized institutions. This paper examines the nexus between DeFi & the NFT market. It delves into DeFi with concepts like Liquidity Pools & DEXs, while clarifying concepts like fungible tokens & stablecoins within NFT ecosystems. Exploring primary & secondary markets, along with NFT royalty structures, it aims to enhance understanding & empower individuals to navigate these landscapes effectively. This paper delves into the intricate relationship between the NFT market & the broader DeFi landscape, offering practical insights for NFT marketplace owners & in-depth analysis for academic researchers.

Asma Alawadi, Nada Kakabadse, Andrew Kakabadse, Sam Zuckerbraun

No abstract is available for this record.

António Miguel Martins

No abstract is available for this record.

Abe Alexander, Lars Fritz

In the ever evolving landscape of decentralized finance automated market makers (AMMs) play a key role: they provide a market place for trading assets in a decentralized manner. For so-called bluechip pairs, arbitrage activity provides a major part of the revenue generation of AMMs but also a major source of loss due to the so-called informed orderflow. Finding ways to minimize those losses while still keeping uninformed trading activity alive is a major problem in the field. In this paper we will investigate the mechanics of said arbitrage and try to understand how AMMs can maximize the revenue creation or in other words minimize the losses. To that end, we model the dynamics of arbitrage activity for a concrete implementation of a pool and study its sensitivity to the choice of fee aiming to maximize the value retention. We manage to map the ensuing dynamics to that of a random walk with a specific reward scheme that provides a convenient starting point for further studies.

Shen-Ning Tung, Cheuk Yin Lee, Tai‐Ho Wang

We study how trading fees and continuous-time arbitrage affect the profitability of liquidity providers (LPs) in Geometric Mean Market Makers (G3Ms). We use stochastic reflected diffusion processes to analyze the dynamics of a G3M model under the arbitrage-driven market [Milionis et al. 2022a. “Automated Market Making and Loss-Versus-Rebalancing.” arXiv e-prints]. Our research focuses on calculating LP wealth and extends the findings of Tassy and White [Tassy and White. 2020. “Growth Rate of a Liquidity Provider's Wealth in xy = c Automated Market Makers.”] for the constant product market maker (Uniswap v2) to a broader range of G3Ms, including Balancer. This allows us to calculate the long-term expected logarithmic growth of LP wealth, offering new insights into the complex dynamics of AMMs and their implications for LPs in decentralized finance.

Sabyasachi Pramanik

It has been acknowledged that blockchain technology has the ability to change company governance. The first section of this chapter addresses the ongoing issues with agency expenses, inefficiencies, and the need for more openness. After that, it looks at how blockchain technology has emerged as a possible remedy, providing a fresh, decentralized method of corporate governance. The examination highlights the tension between the technology's potential for more openness and the emergence of privacy issues as it discusses how it is used to share registers, trading, voting, and accounting procedures. Critical analysis is given to contentious issues including the danger to current shareholder activism and the governance of blockchain technology. To solve these problems, solutions such as regulatory nodes and hybrid blockchain architectures are put forward. The chapter ends with a forward-looking viewpoint on decentralized autonomous organizations (DAOs), which represent a new paradigm in corporate governance and are an inventive substitute for conventional corporate structures.

Yosef Bonaparte

No abstract is available for this record.

Donald Autore, Huimin Chen, Nicholas Clarke, Lin Jingrong

No abstract is available for this record.

Jiaman Xu

Blockchain-based technology has been recognized as a potential tool to transform corporate governance. This chapter first discusses the persisting challenges of agency costs, inefficiencies, and the need for improved transparency. It then examines the emergence of blockchain as a potential solution, offering a novel, decentralized approach to corporate governance. The analysis covers the technology's application to share registers, trading, voting, and accounting practices, emphasizing the duality of its promise for increased transparency and emergent privacy concerns. Controversial aspects, such as the threat to existing shareholder activism and the governance of blockchain itself, are critically examined. Solutions like hybrid blockchain models and regulatory nodes are proposed to address these issues. The chapter concludes with a forward-looking perspective on decentralized autonomous organizations (DAOs) as an innovative alternative to traditional corporate structures, signifying a new paradigm in corporate governance.

Rongda Chen, Jingjing Yu, Chenglu Jin, Xinyang Chen · 6 authors

Abstract Although extensive research has examined the credit risk of real estate enterprises, the relationship between the political connection of real estate enterprises and these enterprises’ credit risk has not been formally studied. Using the panel data of 123 real estate listed companies in the Chinese stock market from 2008 to 2021, this paper finds a significant positive correlation between the political connection of private real estate listed companies and their credit risk. This phenomenon is attributed to the excessive debt that benefits from political connections since it may raise the credit risk of any real estate firm. Interestingly, considering that 2013 is the first year of China’s Internet finance era, we find that the popularity of Internet finance and other decentralized lending financing channels may enhance the impact of political connections on real estate credit risk. Our findings provide new micro evidence for the influencing factors and mechanism of credit risk of real estate enterprises during the recent “credit crisis” in the real estate market in China.

Kaitao Lin

No abstract is available for this record.

Yakun Liu, Yan Chen

No abstract is available for this record.

Valeria Fedyk, De-Rong Kong, Daniel Rabetti

No abstract is available for this record.

Angelo Aspris, Jiří Švec

ABSTRACT Using comprehensive transaction level loan data for the MakerDAO protocol (2019–2023), this study investigates decentralized finance (DeFi) lending dynamics, focusing on the deter- minants of loan demand and the interplay between leverage, skill, and user performance. We document a counterintuitive positive relationship between the cost of borrowing and loan demand, consistent with yield seeking behavior. Moreover, blockchain- and protocol-specific frictions, such as gas fees shape borrowing activity. At the vault level, leverage universally reduces returns and amplifies liquidation risk, with unskilled users incurring significantly greater losses than skilled counterparts under extreme leverage. While skilled users mitigate moderate leverage risks through active management, excessive leverage erodes performance across all skill levels, with forced liquidations accounting for a significant proportion of this decline. The findings reveal critical trade-offs in DeFi permissionless architecture. While skilled participants exploit leverage strategically, systemic design features disproportionately penalize less sophisticated users.