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Working Paper
Interconnected DeFi: Ripple Effects from the Terra Collapse
The emerging world of decentralized finance (DeFi), facilitated by smart contracts operating on blockchain networks, has been notable both for its rapid growth and the high-profile collapses of several of its largest participants. In this paper, we provide a technical account of the financial mechanisms which facilitated the growth and eventual collapse of the Terra Network. From this analysis, we outline a generalizable economic theory of blockchains which aims to differentiate the economics of blockchains as programmable environments from blockchains as accounting ledgers for crypto-assets. ...
Discussion Paper
Primary and Secondary Markets for Stablecoins
Stablecoins are increasingly important in decentralized finance (DeFi) and crypto asset markets, and their prominence has led to greater scrutiny of their unique role as expressions of the U.S. dollar running on blockchain networks. Stablecoins attempt to perform a mechanically complex function – to remain pegged to the dollar, even during periods of market volatility.
Discussion Paper
Governance of Permissionless Blockchain Networks
A permissionless blockchain network is a system of physically distributed computers running a copy of a shared ledger and using the same software rules that enable all network participants to “read, submit, and validate transactions” (Beck, Müller-Bloch, and King, 2018, p. 1022). A permissionless system’s accessibility stands in contrast to that of permissioned systems, in which a central authority pre-selects validators and potentially restricts viewing and submission rights (Krause, Natarajan, and Gradstein, 2017; Beck, Müller-Bloch, and King, 2018).
Discussion Paper
Tokenized Assets on Public Blockchains: How Transparent is the Blockchain?
With the proliferation of programmable blockchains with smart contract capabilities, new blockchain technology use cases have emerged that involve the tokenization of conventional financial assets and related smart contract-based financial services. While early blockchains like Bitcoin introduced native cryptocurrencies as new asset classes, in recent years, market participants have noted the potential for blockchain and distributed ledger technologies (DLT) to be used to trade tokenized versions of bonds, money funds, and commodities, among other assets (GFMA, 2023, p. 6).