Blockchain Banks and the Global Systematically Important Protocol (G-SIP) Framework

26 Pages Posted: 2 Aug 2023 Last revised: 7 Dec 2023

See all articles by Kanis Saengchote

Kanis Saengchote

Department of Banking and Finance, Chulalongkorn Business School

Date Written: December 5, 2023

Abstract

Financial services built on blockchains are often called decentralized finance (DeFi) protocols. Blockchain banks are important players in the DeFi ecosystem and can pose systemic risks just like their traditional counterparts. In this paper, we develop a systemic risk measure based on the BIS’ G-SIB framework, which we call the Global Systematically Important Protocol (G-SIP) framework, which emphasizes interconnectivity but requires detailed knowledge of protocol smart contracts to compute. We compute the G-SIP score for the Aave, Compound, Liquity, and MakerDAO, which account for 88% of blockchain banks on Ethereum, and find that score changes are related to key events in DeFi. The G-SIP score captures different aspects of risk than the loan-to-value (LTV) ratio and concentration ratios and can be useful for DeFi surveillance.

Keywords: DeFi, blockchain, banking, stablecoin, systemic risk

JEL Classification: G01, G21, G28

Suggested Citation

Saengchote, Kanis, Blockchain Banks and the Global Systematically Important Protocol (G-SIP) Framework (December 5, 2023). Available at SSRN: https://ssrn.com/abstract=4526574 or http://dx.doi.org/10.2139/ssrn.4526574

Kanis Saengchote (Contact Author)

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

Bangkok, 10330
Thailand

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