Decentralized Finance (DeFi): Transformative Potential and Associated Risks

Carapella, Francesca; Dumas, Edward; Gerszten, Jacob; Swem, Nathan

doi:10.29338/ph2022-14

Journal Article

Decentralized Finance (DeFi): Transformative Potential and Associated Risks

Abstract: Financial services in the crypto finance world are provided by a combination of centralized finance (CeFi) organizations and decentralized finance (DeFi). CeFi's are roughly similar to traditional financial intermediaries, but DeFi seeks to provide services using smart contracts (computer code) rather than an intermediary. DeFi's unusual structure creates some interesting potential but also raises new risks in addition to those already inherent in blockchains and crypto finance. This paper reviews some of the opportunities and risks.

Keywords: Decentralized finance; blockchain; cryptocurrency; financial services; financial stability;

JEL Classification: D23; D26; G19; G23; G28; L14; L23; L86;

https://doi.org/10.29338/ph2022-14