An Introduction to Decentralized Finance (DeFi)

Johannes Rude Jensen, Victor von Wachter, Omri Ross

Abstract


Decentralized financial applications (DeFi) are a new breed of consumer-facing financial applications composed as smart contracts, deployed on permissionless blockchain technologies. In this article, we situate the DeFi concept in the theoretical context of permissionless blockchain technology and provide a taxonomical overview of agents, incentives and risks. We examine the key market categories and use-cases for DeFi applications today and identify four key risk groups for potential stakeholders contemplating the advantages of decentralized financial applications. We contribute novel insights into a rapidly emerging field, with far-reaching implications for the financial services.

Keywords:

Blockchain; Decentralized Finance; DeFi; Smart Contracts

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DOI: 10.7250/csimq.2021-26.03

Cited-By

1. A survey of DeFi security: Challenges and opportunities
Wenkai Li, Jiuyang Bu, Xiaoqi Li, Hongli Peng, Yuanzheng Niu, Yuqing Zhang
Journal of King Saud University - Computer and Information Sciences  year: 2022  
doi: 10.1016/j.jksuci.2022.10.028

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Copyright (c) 2021 Johannes Rude Jensen, Victor von Wachter, Omri Ross

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This work is licensed under a Creative Commons Attribution 4.0 International License.