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Type Bachelor's Thesis
Scope Discipline-based scholarship
Title How do Decentralised Finance Protocols compare to traditional financial products? Which taxonomic approach allows for their categorization?
Organization Unit
Authors
  • Mark Rüetschi
Supervisors
  • Claudio Tessone
Language
  • English
Institution University of Zurich
Faculty Faculty of Business, Economics and Informatics
Date 2023
Abstract Text Decentralized finance (DeFi) has grown rapidly since 2020, but it also has seen a large correction in 2022. By the end of 2022, the total value locked in DeFi smart contracts has increased by a factor of almost 70, compared to 2020 (Nansen DeFi Statistics 2023). Due to open access, transparency, high interoperability and low intermediation, DeFi application are facing different circumstances than their traditional counterparts. The ecosystem has created new inventions and is still evolving. DeFi protocols are improving their services or adding new services to their portfolio in order to become platforms that offer an increased user experience. This thesis creates a taxonomy of decentralized finance protocols with goal to facilitate future research in this area. Additionally, a comparison to traditional financial applications is made in order to derive possible implications to traditional finance. Different approaches to loan issuance can be found. Even if there is no credit issuance or a securities market in DeFi, blockchain technology seems to offer some benefits in this field. Decentralized exchanges are usually designed differently to traditional order book exchanges. They are finding innovative ways to adopt traditional order book functionalities and under certain circumstances they can be beneficial over order book exchanges. Other DeFi inventions cannot be found in traditional finance. Inventions like flash loans, perpetual swaps and yield farming bring new possibilities to the DeFi ecosystem, but they also certain risks and have lead to several exploits. Risks and opportunities around these inventions are discussed in this thesis.
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