Towards a Theory of Decentralized Finance

Bartoletti, Massimo; Chiang, James Hsin yu; Lafuente, Alberto Lluch

doi:10.1007/978-3-662-63958-0_20

Cited by 12 publications

(5 citation statements)

References 13 publications

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“…This paper, together with our work on formalizing another DeFi archetype called lending pool [BCL21a], is the first step towards a general theory of DeFi [BCL21c]. We believe that a general theory encompassing interactions between different DeFi archetypes is crucial to be able to reason about their structural, economic and security aspects, as typical DeFi applications operate within a wider ecosystem, composed by a set of collaborating or competing agents, which interact through possibly separate execution environments.…”

Section: Discussionmentioning

confidence: 99%

A theory of Automated Market Makers in DeFi

Bartoletti¹,

Chiang²,

Lafuente³

2022

Logical Methods in Computer Science

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Automated market makers (AMMs) are one of the most prominent decentralized finance (DeFi) applications. AMMs allow users to trade different types of crypto-tokens, without the need to find a counter-party. There are several implementations and models for AMMs, featuring a variety of sophisticated economic mechanisms. We present a theory of AMMs. The core of our theory is an abstract operational model of the interactions between users and AMMs, which can be concretised by instantiating the economic mechanisms. We exploit our theory to formally prove a set of fundamental properties of AMMs, characterizing both structural and economic aspects. We do this by abstracting from the actual economic mechanisms used in implementations, and identifying sufficient conditions which ensure the relevant properties. Notably, we devise a general solution to the arbitrage problem, the main game-theoretic foundation behind the economic mechanisms of AMMs.

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Section: Discussionmentioning

confidence: 99%

A theory of Automated Market Makers in DeFi

Bartoletti¹,

Chiang²,

Lafuente³

2022

Logical Methods in Computer Science

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“…Un estudio de la organización del mercado DeFi, incluido el funcionamiento de los creadores de mercado automatizados. Bartoletti et al (2021) Una visión general de los retos y oportunidades abiertos para los métodos formales en el ámbito de DeFi. Teoría DeFi.…”

Section: Mohan (2022)unclassified

Evaluación de los factores determinantes de las valoraciones de los protocolos DeFi: Un análisis cuantitativo

Metelski,

Sobieraj

2024

JASCS

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“…Кроме того, авторы вводят в обращение понятие согласованности стимулов, а именно динамический обменный курс, на который полагаются пользователи приложения АММs. При этом данный курс управляется определенным числом так называемых торговых инвариантов (trading invariants), для которых существуют механизмы стимулирования и арбитражная игра, способные провести объективный формальный анализ поведения АММs на рынке токенизированных активов (Bartoletti et al, 2023).…”

Section: приложения децентрализованных финансовunclassified

Tokenization of real assets: classification, platforms, applications, opportunities and challenges of development

Andryushin

2024

RusJEL

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Objective: literature review and basic characteristics of the asset tokenization; clarification of the types of token classification; identification of the stages of modeling the asset tokenization; analysis of applications of decentralized finance ecosystem protocols; study of the opportunities and systemic advantages of asset tokenization; presentation of the problems arising in the asset tokenization; analysis of the factors of asset tokenization efficiency growth.Methods: the article uses empirical, historical, logical, country-specific, corporate, comparative and statistical methods of economic analysis to study the peculiarities of the asset tokenization development in the digital transformation of modern economy.Results: the basic characteristics of the asset tokenization are disclosed; the types of standardized tokens involved in the asset tokenization are defined; the stages of the asset tokenization development are considered; the options of using decentralized finance applications under asset tokenization are shown; the opportunities of tokenization through the new forms of investment, increased financial accessibility, transparency and componentization of tokenized assets are studied; the problems of tokenization are analyzed; the factors of asset tokenization efficiency growth under the cross-chain compatibility of different types of blockchains are analyzed. Scientific novelty: the article shows that asset tokenization is a process of accounting and asset management transformation, in which each asset is represented in the form of a programmable digital token; tokenization is a new form of creating additional liquidity by expanding the circulation of idle illiquid assets. Tokenization guarantees greater transparency regarding the rights to real assets and the history of ownership of these rights; it contributes to transaction efficiency by reducing transaction costs, including costs associated with management, token issuance and possible forms of intermediation. By accessing the applications of the DeFi ecosystem, it allows the expansion of financial market potential through the fragmentation and compartmentalization of tokenized assets. All the challenges in the asset tokenization are related to the blockchain trilemma, where decentralization, security and scalability cannot be implemented together. The blockchain trilemma is now becoming a set of possible trade-offs that can preserve all three properties of the blockchain, but at different levels of compatibility. To form a set of possible trade-offs, it is necessary to develop a theory of interoperability, which should be built on the compatibility of factors such as anonymity and privacy, security and preservation of rights to tokenized assets.Practical significance: the main provisions and conclusions of the article can be used: to develop scenarios for the asset tokenization development under the digital transformation of modern economy; to analyze the applications of the decentralized finance ecosystem protocols; to increase the efficiency of asset tokenization under the cross-chain compatibility of different types of blockchains; to study additional opportunities and systemic advantages as a result of fragmentation and compatability of tokenized assets; to study the problems arising in the asset tokenization; and to search for additional growth factors for the asset tokenization efficiency.

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Towards a Theory of Decentralized Finance

Cited by 12 publications

References 13 publications

A theory of Automated Market Makers in DeFi

A theory of Automated Market Makers in DeFi

Evaluación de los factores determinantes de las valoraciones de los protocolos DeFi: Un análisis cuantitativo

Tokenization of real assets: classification, platforms, applications, opportunities and challenges of development

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