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Simulation of Dynamic Performance of DeFi Protocol Based on Historical Crypto Market Behavior

Author

Listed:
  • Iveta Grigorova

    (Faculty of Automatics, Industrial Automation, Technical University, 1000 Sofia, Bulgaria)

  • Aleksandar Karamfilov

    (Faculty of Automatics, Industrial Automation, Technical University, 1000 Sofia, Bulgaria)

  • Radostin Merakov

    (Faculty of Automatics, Industrial Automation, Technical University, 1000 Sofia, Bulgaria)

  • Aleksandar Efremov

    (Faculty of Automatics, Industrial Automation, Technical University, 1000 Sofia, Bulgaria)

Abstract

In a rapidly evolving and often volatile crypto market, the ability to use historical data for simulations provides a more realistic assessment of how decentralized finance (DeFi) protocols might perform. This insight is crucial for participants, developers, and investors seeking to make informed decisions. This paper presents a comprehensive study evaluating the dynamic performance of a newly developed DeFi protocol—NOLUS. The main objective of this paper is to present and analyze the built realistic model of the platform. This model could be successfully used to analyze the stability of the platform under different environmental influences by performing various simulations and conducting experiments with different parameters that could not be realized with the real platform. In the article, the key components of the platform are presented in detail and the main dependencies between them are clarified, in addition to the ways of forming multiple variables, and the complex relations between them in the real protocol are explained. The main finding from the experimental part of the study is that the performance of the protocol representation accounts for the expected system behavior. Hence the system simulation could be successfully used to reveal essential protocol behaviors resulting from potential shifts in the crypto market environment and to optimize the protocol’s hyper parameters.

Suggested Citation

  • Iveta Grigorova & Aleksandar Karamfilov & Radostin Merakov & Aleksandar Efremov, 2023. "Simulation of Dynamic Performance of DeFi Protocol Based on Historical Crypto Market Behavior," Risks, MDPI, vol. 12(1), pages 1-20, December.
    • Handle: RePEc:gam:jrisks:v:12:y:2023:i:1:p:3-:d:1307103
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    References listed on IDEAS

    as
    1. Francesca Carapella & Edward Dumas & Jacob Gerszten & Nathan Swem, 2022. "Decentralized Finance (DeFi): Transformative Potential and Associated Risks," Policy Hub, Federal Reserve Bank of Atlanta, vol. 2022(14), October.
    2. Saengchote, Kanis, 2023. "Decentralized lending and its users: Insights from compound," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 87(C).
    3. Francesca Carapella & Nathan Swem, 2022. "Decentralized Finance (DeFi): Transformative Potential & Associated Risks," Finance and Economics Discussion Series 2022-057, Board of Governors of the Federal Reserve System (U.S.).
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