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SoK: Decentralized Finance (DeFi)-Fundamentals, Taxonomy and Risks
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  • KRZYSZTOF GOGOL,
  • CHRISTIAN KILLER,
  • MALTE SCHLOSSER,
  • THOMAS BOCEK,
  • Burkhard Stiller
KRZYSZTOF GOGOL
Universitat Zurich Institut fur Informatik

Corresponding Author:gogol@ifi.uzh.ch

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CHRISTIAN KILLER
Universitat Zurich Institut fur Informatik
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MALTE SCHLOSSER
Universitat Zurich Institut fur Banking und Finance
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THOMAS BOCEK
Universitat Zurich Institut fur Informatik
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Burkhard Stiller
Universitat Zurich Institut fur Informatik
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Abstract

Financial services that are not only related to crypto-currencies but rely on blockchain for security and integrity are jointly referred to as Decentralized Fiance (DeFi) and are evolving rapidly. Given their novel applications of DLT and sophistical economical designs, the distinction between DeFi services and understanding the involved risk are often complex. This paper systematically studies the major classes of DeFi protocols, including risk and security. The selection of DeFi categories is based on a quantitative approach, covering over 80% of total value locked (TVL) in DeFi. Further, a structured methodology is provided to differentiate between DeFi protocols based on the algorithmic design and blockchain-network architecture. The findings indicate that every DeFi protocol falls into one of the three classes of DeFi algorithms: liquidity pool, synthetic asset or aggregator protocol. This work concludes with the risk analysis that is derived from the DeFi protocol, underlying tokens and agents. Certain DeFi assets, such as crypto-backed stablecoins, liquid staking tokens, and wrapped tokens of bridges, are synthetic assets, similar to derivatives in traditional finance, and bore similar risk exposure.
02 Jun 2023Submitted to International Journal of Network Management
02 Jun 2023Submission Checks Completed
02 Jun 2023Assigned to Editor
05 Jun 2023Review(s) Completed, Editorial Evaluation Pending
05 Jun 2023Reviewer(s) Assigned
10 Jul 2023Editorial Decision: Revise Minor
29 Aug 20231st Revision Received
11 Sep 2023Submission Checks Completed
11 Sep 2023Assigned to Editor
11 Sep 2023Review(s) Completed, Editorial Evaluation Pending
11 Sep 2023Reviewer(s) Assigned
16 Oct 2023Editorial Decision: Revise Major