Decentralized Finance (DeFi)

Calcaterra, Craig; Kaal, Wulf A.

doi:10.2139/ssrn.3782216

Cited by 10 publications

(10 citation statements)

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“…However, as centralized entities, they reintroduce the concept of trust and single point of failure in a decentralized environment [57]. Decentralized Finance as a Real-world blockchain requires oracles to fetch data about prices and exchange rates of crypto assets [137]. A biased or imprecise communication channel can result in an unwanted operation and the consequent loss of millions of dollars [119,120].…”

Section: Discussionmentioning

confidence: 99%

“…However, other authors offered perspectives that were useful for the development of this paper. Werner et al, [137], Schar [71], Harvey et al, [30] and Amler et al, [20] provided systematization of knowledge in a broad sense of the concept of decentralized Finance. They discussed many DeFi applications as well as related opportunities & challenges and also provided a small overview of the role of oracles.…”

Section: Related Workmentioning

confidence: 99%

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The Blockchain Oracle Problem in Decentralized Finance - A Multivocal Approach

Caldarelli¹,

Ellul²

2021

Preprint

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Decentralized Finance (DeFi) takes the promise of blockchain a step further and aims to transform traditional financial products into trustless and transparent protocols that run without involving intermediaries. Similar to how 2017 was the year of ICOs, 2020 was the year of DeFI with more than $15 billion of total investments. The decentralized platforms utilize oracles to retrieve asset data from the external world, but their choice and management criteria are often unknown to the end-users. If oracles are poorly selected or managed, the funds of a rising number of investors are inevitably in danger. The issue known as “the oracle problem,” which makes real-world applications controversial and debated due to the loss of decentralization, had recently drawn attention to DeFi given the crescent number of related hacks that caused the loss of millions of dollars held in DeFi projects. With a multivocal approach, this paper aims to shed light on the pattern that identifies the oracle problem in DeFi and outline the most promising ways to overcome the related weaknesses. This research supports the view that the oracle problem in decentralized finance bears specific characteristics which require standardization and appropriate economic incentives to be addressed.

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Section: Discussionmentioning

confidence: 99%

Section: Related Workmentioning

confidence: 99%

The Blockchain Oracle Problem in Decentralized Finance - A Multivocal Approach

Caldarelli¹,

Ellul²

2021

Preprint

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“…One of DeFi's objectives, when compared to traditional finance, is to foster financial transparency and accountability [46], while flash loans provide novel atomic lending contracts granting instantaneously billions of USD in debt [48]. The assets, as well as the operations being digital in blockchain, DeFi has facilitated handling many tasks related to governance, issuance, and order matching algorithmically [19]. The same trend is observed in trading and portfolio management: several studies have shown that machine learning can be used for Bitcoin price prediction [51] or directly outputting the portfolio vector [34] to automate Bitcoin trading and execute high-frequency trading [58].…”

Section: Algorithmic Trading Of Cryptocurrenciesmentioning

confidence: 99%

Towards Private On-Chain Algorithmic Trading

Kocaoğullar,

Gervais,

Livshits

2021

Preprint

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While quantitative automation related to trading cryptoassets such as ERC-20 tokens has become relatively commonplace, with services such as 3Commas and Shrimpy offering user-friendly web-driven services for even the average crypto trader, not the mention the specialist, we have not yet seen the emergence of on-chain trading as a phenomenon. We hypothesize that just like decentralized exchanges (DEXes) that by now are by some measures more popular than traditional exchanges, process in the space of decentralized finance (DeFi) may enable attractive online trading automation options. In this paper we present ChainBot, an approach for creating algorithmic trading bots with the help of blockchain technology. We show how to partition the algorithmic computation into on-and off-chain components in a way that provides a measure of end-to-end integrity, while preserving the algorithmic "secret sauce". The end result is a system where an enduser can sign-up for the services of a trading bot, with trust established via on-chain publicly readable contracts. Our system is enabled with a careful use of algorithm partitioning and zero-knowledge proofs together with standard smart contracts available on most modern blockchains. Our approach offers more transparent access to liquidity and better censorship-resistance compared to traditional off-chain trading approaches both for crypto-and more traditional assets. We show that the end-to-end costs and execution times are affordable for regular use and that gas costs can be successfully amortized because trading strategies are executed on behalf of large user pools. Finally, we show that with modern layer-2 (L2) technologies, trades issued by the trading bot can be kept private, which means that algorithmic parameters are difficult to recover by a chain observer. With ChainBot, we develop a sample trading bot and train it on historical data, resulting in returns that are up to 2.4× and on average 1.4× the buy-and-hold strategy, which we use as our baseline. Our measurements show that across 1000 runs, the end-to-end average execution time for our system is 48.4 seconds. We demonstrate that the frequency of trading does not significantly affect the rate of return and Sharpe ratio, which indicates that we do not have to trade at every block, thereby significantly saving in terms of gas fees.

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“…Decentralised finance (DeFi) is a term that refers to novel P2P financial infrastructures, based on smart contracts, that are non‐custodial, permissionless, openly verifiable and composable [24]. With DeFi protocols such as Decentralised Exchanges (DEX), anyone can engage in non‐custodial exchange of on‐chain digital assets, for example, tokens.…”

Section: Introductionmentioning

confidence: 99%

“…In contrast to traditional finance where an asset's liquidity is based on the bid and ask order prices, in the most used DeFi protocols, such as Uniswap. usually assets are ERC20 tokens and their liquidity is provided algorithmically through a simple pricing rule within a smart contract [24].…”

Section: Introductionmentioning

confidence: 99%

Complex queries over decentralised systems for geodata retrieval

et al. 2022

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Decentralised systems have been proved to be quite effective to allow for trusted and accountable data sharing, without the need to resort to a centralised party that collects all the information. While complete decentralisation provides important advantages in terms of data sovereignty, absence of bottlenecks and reliability, it also adds some issues concerned with efficient data lookup and the possibility to implement complex queries without reintroducing centralised components. In this paper, we describe a system that copes with these issues, thanks to a multi-layer lookup scheme based on Distributed Hash Tables that allows for multiple keyword-based searches. The service of peer nodes participating in this discovery service is controlled and rewarded for their contribution. Moreover, the governance of this process is completely automated through the use of smart contracts, thus building a Decentralised Autonomous Organization (DAO). Finally, we present a use case where road hazards are collected in order to test the goodness of our system for geodata retrieval. Then, we show results from a performance evaluation that confirm the viability of the proposal. | INTRODUCTIONThe digitalisation process, which has been ongoing over the last decades, has seen data management and data delivery become crucial issues. The transformation brought about by digital technologies has data at its core and it had a significant impact on economies and societies around the world. The ability to easily get hold of data has the potential to create several new services based on data and new markets where more and more users are consumers and providers at the same time. However, obtaining large amounts of data that is not from a dubious (or false) origin is often a challenge. In order to cope with the increasingly higher number of content that is demanded through the Web, multiple solutions for efficient use of the Internet have been designed. In particular, thanks to the decentralisation of content storage and delivery, it is possible to avoid the single point of failure, while reducing the workload at data centres and allowing a distribution of data that remains 'closer' to the original data producer. Decentralisation also fosters the creation of open systems, where participants can freely join the system and then contribute to its functioning.Recently, Distributed Ledger Technologies (DLTs) and a realm of decentralised systems, for example, Decentralised File Storages (DFS), have emerged as Peer-to-Peer (P2P) technologies capable of offering interesting features related to data validation and trustfulness [2,3]. DLTs have gained popularity with the advent of cryptocurrencies, which allow users to trade crypto-assets without any central entity being involved, ensuring transparency and data integrity. By creating a common, decentralised and trustless infrastructure, it will be possible for data consumers and providers to interact and collaborate in P2P interactions [4,5]. Benefits often cited of DLTs, indeed, include the enabling of ...

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Decentralized Finance (DeFi)

Cited by 10 publications

References 0 publications

The Blockchain Oracle Problem in Decentralized Finance - A Multivocal Approach

The Blockchain Oracle Problem in Decentralized Finance - A Multivocal Approach

Towards Private On-Chain Algorithmic Trading

Complex queries over decentralised systems for geodata retrieval

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