Where do DeFi Stablecoins Go? A Closer Look at What DeFi Composability Really Means.

23 Pages Posted: 28 Jul 2021

See all articles by Kanis Saengchote

Kanis Saengchote

Department of Banking and Finance, Chulalongkorn Business School

Date Written: July 26, 2021

Abstract

One of the benefits of decentralized finance (DeFi) – an alternative financial system built on blockchain – is composability, which means the system’s building blocks (tokens) can freely interact with one another to form new services. One example is stablecoin, a token with fixed exchange rate, which is backed by token collaterals. While stablecoins can be used to facilitate payments and exchanges, in DeFi they can be used to earn returns (“yield farming”), potentially multiplicatively. We use transaction-level blockchain data to analyze a stablecoin’s flows between protocols and provide suggestive evidence of DeFi yield-chasing behavior. We shed light on what DeFi total value locked might really measure and highlight the complexity in DeFi analysis and market surveillance.

Keywords: DeFi, stablecoin, total value locked, yield farming, systemic risk

JEL Classification: E00, G00

Suggested Citation

Saengchote, Kanis, Where do DeFi Stablecoins Go? A Closer Look at What DeFi Composability Really Means. (July 26, 2021). Available at SSRN: https://ssrn.com/abstract=3893487 or http://dx.doi.org/10.2139/ssrn.3893487

Kanis Saengchote (Contact Author)

Department of Banking and Finance, Chulalongkorn Business School ( email )

Bangkok, 10330
Thailand

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