BUSINESS INFORM JOURNAL.

УКР

ENG

Search:

REGISTRATION CERTIFICATE

KV #19905-9705 PR dated 02.04.2013.

FOUNDERS

RESEARCH CENTRE FOR INDUSTRIAL DEVELOPMENT PROBLEMS of NAS (KHARKIV, UKRAINE)

According to the decision No. 802 of the National Council of Television and Radio Broadcasting of Ukraine dated 14.03.2024, is registered as a subject in the field of print media.
ID R30-03156

PUBLISHER

Liburkina L. M.

SITE SECTIONS

Decentralized Finance: Principles of Functioning, Infrastructure, Risks
Lukianchuk D. Y.

Lukianchuk, Denys Yu. (2024) “Decentralized Finance: Principles of Functioning, Infrastructure, Risks.” Business Inform 3:289–304.
https://doi.org/10.32983/2222-4459-2024-3-289-304

Section: Finance, Money Circulation and Credit

Article is written in English
Downloads/views: 0

Download article (pdf) -

UDC 336.1

Abstract:
The article analyzes the differences between centralized and decentralized exchanges in the cryptocurrency market. The author notes the impact of bankruptcies of centralized representatives who provided services in the cryptocurrency market on the interaction of users with decentralized finance instruments. The publication considers the key representatives of decentralized finance, their capitalization, available capital, and technological developments. It substantiates the advantages and risks of using decentralized finance instruments and studies the differences between centralized, decentralized, and algorithmic stablecoins. To assess the capitalization of decentralized finance instruments, the asset value indicator TVL (Total Value Locked) is used. TVL represents the amount of assets currently placed in a particular decentralized finance instrument or protocol. The RWA narrative is significant in the crypto space as it demonstrates increased interconnectedness. DeFi, previously isolated from TradFi, has now become an integral part of a more holistic financial ecosystem. Blockchain technology has demonstrated its potential for transformation through real-world use cases. Real-world assets (RWAs) are an attractive option due to the large traditional finance market. While they offer benefits such as portfolio diversification and enhanced returns, it is crucial to mitigate default risk. Platforms like Goldfinch have a proven track record. Tokenizing RWAs can increase market participation and financial inclusivity. The study's results indicate significant development of decentralized finance instruments over the past three years. This is evidenced by the amount of capital invested in these instruments and the number of users, despite the technological and regulatory risks associated with them. The study's conclusions indicate that despite the technological novelty, users are increasingly interested in interacting with decentralized finance instruments. However, users face difficulties in understanding how these instruments work and in gaining experience with these products. The comparative analysis by Saif Ahmed Abdulhakeem and Qiuling Hu titled "CeFi vs. DeFi — Comparing Centralized to Decentralized Finance" systematically contrasts Centralized Finance (CeFi) with Decentralized Finance (DeFi) across legal, economic, security, privacy, and market manipulation dimensions. It aims to provide a structured approach for distinguishing between CeFi and DeFi services, emphasizing DeFi's transparency and user control advantages. However, unresolved issues in decentralized finance, such as regulatory frameworks and risk assessment, necessitate further research. The study also underscores the importance of improving user experience design and overcoming adoption challenges for DeFi. In their academic discourse titled "Powered by Blockchain Technology, DeFi (Decentralized Finance) Strives to Increase Financial Inclusion of the Unbanked by Reshaping the World Financial System," Abdulhakeem and Hu analyze DeFi's potential to enhance financial inclusion for the unbanked. They highlight the pivotal role of blockchain, particularly Ethereum, in enabling DeFi. While acknowledging DeFi's decentralization benefits, the article suggests it as a complement rather than a replacement for traditional finance. It advocates for future research on integrating DeFi with global banking systems and improving user interface and security. Overall, while recognizing DeFi's transformative potential, the article underscores the need for ongoing research to address challenges and integrate DeFi into mainstream finance seamlessly.

Keywords: decentralized finance, centralized exchanges, decentralized exchanges, stablecoins, smart contracts, blockchain, real world assets.

Tabl.: 3. Bibl.: 44.

Lukianchuk Denys Yu. – Postgraduate Student, Department of Banking and Insurance, Kyiv National Economic University named after Vadym Hetman (54/1 Beresteiskyi Ave., Kyiv, 03057, Ukraine)
Email: [email protected]

List of references in article

“Introduction to Dapps“. https://ethereum.org/en/developers/docs/dapps/
Qin, K. et al. CeFi vs. DeFi - Comparing Centralized to Decentralized Finance. DOI: https://doi.org/10.48550/arXiv.2106.08157
Saif, A. A., and Hu, Q. “Powered by Blockchain Technology, DeFi (Decentralized Finance) Strives to Increase Financial Inclusion of the Unbanked by Reshaping the World Financial System“. Modern Economy, vol. 12, no. 1 (2021): 1-16. DOI: 10.4236/me.2021.121001
“CEX vs DEX: What's the difference?“ Lime Chain. September 14, 2022. https://limechain.tech/blog/cex-vs-dex-the-difference/
“Aave Document Hub“. https://docs.aave.com/hub/
Geroni, D. “What Is Compound & How Does It Work?“ https://101blockchains.com/compound-protocol/
“Aave (AAVE) vs Compound (COMP): Which is the Better Staking Platform?“ phemex. May 05, 2022. https://phemex.com/academy/aave-vs-compound-crypto
“Defi lama aave“. https://defillama.com/protocol/aave
“Defi lama compound“. https://defillama.com/protocol/compound-finance
“Coingeco total market cap“. https://www.coingecko.com/en/global-charts
Geroni, D. “A Beginner's Guide to Decentralized Exchanges (DEX)“. https://101blockchains.com/decentralized-exchanges/
Geroni, D. “UNISWAP - Know Everything About the Largest Decentralized Exchange (DEX)“. https://101blockchains.com/uniswap/
“What is a liquidity pool?“ https://support.uniswap.org/hc/en-us/articles/8829880740109-What-is-a-liquidity-pool-
“Who uses the Uniswap protocol?“ https://support.uniswap.org/hc/en-us/articles/8121972059661-Who-uses-the-Uniswap-protocol-
“What is dYdX. An Order Book Decentralized Exchange (DEX)“. phemex. December 20, 2021. https://phemex.com/academy/what-is-dydx
“What is dYdX? A beginner's guide to trading on a decentralized exchange“. https://cointelegraph.com/trading-for-beginners/what-is-dydx-a-beginners-guide-to-trading-on-a-decentralized-exchange
“What the FTX collapse means for the future of crypto“. https://forkast.news/what-ftx-collapse-means-for-future-of-crypto/
Shukla, S., Kharif, O., and Ossinger, J. “Billions of Dollars Flee to Crypto's Decentralized Roots After FTX Collapse“. Bloomberg. November 18, 2022. https://www.bloomberg.com/news/articles/2022-11-18/billions-of-dollars-flee-ftx-woe-to-crypto-s-decentralized-roots
“Weekly USDC reserves breakdown“. https://www.circle.com/en/transparency
“Transparency“. https://tether.to/en/transparency/
“The Maker Protocol: MakerDAO's Multi-Collateral Dai (MCD) System“. https://makerdao.com/en/whitepaper/#the-dai-stablecoin
“Collateralized dai“. https://daistats.com/#/overview
“What is Frax (FXS): The First Fractional-Algorithmic Stablecoin“. phemex. May 11, 2022. https://phemex.com/academy/what-is-frax-fxs
“Price UST“. https://www.coingecko.com/en/coins/terraclassicusd
“Top Stablecoin Tokens by Market Capitalization“. https://coinmarketcap.com/view/stablecoin/
Naggar, M. “Real World Assets: The Bridge Between TradFi and DeFi“. Binance-research, March 2023. https://research.binance.com/static/pdf/real-world-asset-report.pdf
Khan, A. “BlockTower Credit and MakerDAO to Fund $220 Million of Real-World Assets through Centrifuge“. Medium. December 14, 2022. https://medium.com/centrifuge/blocktower-credit-and-makerdao-to-fund-220-million-of-realworld-assets-through-centrifuge-b52d0fab0fee
“What are Real World Assets (RWA) in Crypto?“ https://www.coingecko.com/learn/what-are-real-world-assets-exploring-rwa-protocols
Sandor, K. “Maple Finance Plots Comeback With New $100M Liquidity Pool for Tax Receivables With 10% Yield“. CoinDesk. January 25, 2023. https://www.coindesk.com/markets/2023/01/25/maple-finance-plots-comeback-with-new-100m-liquidity-pool-for-tax-receivables-with-10-yield/
Yeoh, G. “Real-World Assets in Decentralized Finance“. https://members.delphidigital.io/reports/real-world-assets-in-decentralized-finance#goldfinch
“Protocol fees Goldfinch“. https://dune.com/goldfinch/goldfinch
“Vulnerabilities in Cross-chain Bridge Protocols Emerge as Top Security Risk“. Chainalysis. August 02, 2022. https://www.chainalysis.com/blog/cross-chain-bridge-hacks-2022/
Nagesh, M., and Chen, B. “Decoding Cross-Chain Interoperability“. Binance Research. November 23, 2023. https://www.binance.com/en/research/analysis/decoding-cross-chain-interoperability
“CCIP Architecture“. https://docs.chain.link/ccip/architecture
“Chainlink CCIP's Defense-In-Depth Security and the Risk Management Network“. https://blog.chain.link/ccip-risk-management-network/
“The Five Levels of Cross-Chain Security“. https://blog.chain.link/five-levels-cross-chain-security/#level_5__defense-in-depth
“Cross-Chain Settlement of Tokenized Assets Using Chainlink CCIP“. 2023. https://pages.chain.link/hubfs/e/anz-ccip-cross-chain-tokenized-asset-settlement-case-study.pdf
“Security on Axelar Network“. https://axelar.network/blog/security-at-axelar-core
“Axelar General Message Passing now Connects the Cosmos and all EVM Chains“. https://axelar.network/blog/axelar-general-message-passing-now-connects-the-cosmos-and-all-evm-chains
Axelar scan. https://axelarscan.io/interchain
“Axelar and Microsoft Partner for a More Integrated and Intelligent Web3“. https://axelar.network/blog/microsoft-enterprise-partnership-announcement
Zarick, R., Pellegrino, B., and Banister, C. “LayerZero: Trustless inter-chain transactions“. https://layerzero.network/pdf/LayerZero_Whitepaper_Release.pdf
“43-LayerZero x Google Cloud“. Medium. September 12, 2023. https://medium.com/layerzero-official/layerzero-x-google-cloud-7b4784873071
Ledesma, L. “JPMorgan, Apollo Tokenize Funds in 'Proof of Concept' With Axelar, Oasis, Provenance“. CoinDesk. November 15, 2023. https://www.coindesk.com/tech/2023/11/15/jpmorgan-apollo-tokenize-funds-in-proof-of-concept-with-axelar-oasis-provenance/

FOR AUTHORS

License Contract

Conditions of Publication

Article Requirements

Regulations on Peer-Reviewing

Publication Contract

Current Issue

Frequently asked questions

INFORMATION

The Plan of Scientific Conferences

OUR PARTNERS

Journal «The Problems of Economy»

The site and its metadata are licensed under CC BY-SA.

Write to webmaster