DeFi and the Future of Finance

39 Pages Posted: 15 Dec 2020 Last revised: 6 Feb 2022

See all articles by Campbell R. Harvey

Campbell R. Harvey

Duke University - Fuqua School of Business; National Bureau of Economic Research (NBER)

Ashwin Ramachandran


Joey Santoro

Fei Protocol

Date Written: April 5, 2021


Our legacy financial infrastructure has both limited growth opportunities and contributed to the inequality of opportunities. Around the world, 1.7 billion are unbanked. Small businesses, even those with a banking relationship, often must rely on high-cost financing, such as credit cards, because traditional banking excludes them from loan financing. High costs also impact retailers who lose 3% on every credit card sales transaction. These total costs for small businesses are enormous by any metric. The result is less investment and decreased economic growth. Decentralized finance, or DeFi, poses a challenge to the current system and offers a number of potential solutions to the problems inherent in the traditional financial infrastructure. While there are many fintech initiatives, we argue that the ones that embrace the current banking infrastructure are likely to be fleeting. We argue those initiatives that use decentralized methods - in particular blockchain technology - have the best chance to define the future of finance.

This is an excerpt from a early version of our manuscript, DeFi and the Future of Finance published by John Wiley and Sons. It includes drafts of chapters 1, 2, 7 and 8 plus the DeFi glossary.

Keywords: Decentralized finance, DeFi; Fintech, Flash loans, Flash swaps, Automatic Market Maker, Cryptocurrency, Uniswap, MakerDAO, Compound, Ethereum, Aave, Yield protocol, ERC-20, Initial DeFi Offering, dYdX, Synthetix, Keeper, Set protocol

JEL Classification: A10, B10, D40, E44, F30, F60, G10, G21, G23, G51, I10, K10, L14, M10, O16, O33, O40, P10

Suggested Citation

Harvey, Campbell R. and Ramachandran, Ashwin and Santoro, Joseph, DeFi and the Future of Finance (April 5, 2021). Available at SSRN: or

Campbell R. Harvey (Contact Author)

Duke University - Fuqua School of Business ( email )

Box 90120
Durham, NC 27708-0120
United States
919-660-7768 (Phone)


National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ashwin Ramachandran

Independent ( email )

Joseph Santoro

Fei Protocol ( email )

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