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Decentralized Finance (DeFi) assurance: early evidence

Author

Listed:
  • Thomas Bourveau

    (Columbia University, Graduate School of Business)

  • Janja Brendel

    (Chinese University of Hong Kong Business School)

  • Jordan Schoenfeld

    (University of Utah, Eccles School of Business)

Abstract

Decentralized finance (DeFi) has emerged to offer traditional financial services such as lending, borrowing, and trading without intermediaries (e.g., banks). DeFi transactions are typically executed using a special digital class of contracts called smart contracts. These contracts are self-executing and hard-coded directly on a blockchain. We observe the emergence of a new class of voluntary audits that evaluate the integrity of these contracts. Using a hand-coded sample of about 8,500 smart contract audit reports, we provide some of the first evidence showing that (1) these audits are pervasive, (2) the audit firm market is composed of new technical audit firms, (3) the scope of these audits can span a variety of contract features, (4) the audit inputs and outputs differ substantively from those of conventional financial audits, and (5) the market reacts positively to the release of these audit reports, suggesting that these reports are value-relevant. These findings highlight the demand for novel assurance services driven by blockchain technology.

Suggested Citation

  • Thomas Bourveau & Janja Brendel & Jordan Schoenfeld, 2024. "Decentralized Finance (DeFi) assurance: early evidence," Review of Accounting Studies, Springer, vol. 29(3), pages 2209-2253, September.
    • Handle: RePEc:spr:reaccs:v:29:y:2024:i:3:d:10.1007_s11142-024-09834-8
    DOI: 10.1007/s11142-024-09834-8
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    More about this item

    Keywords

    Auditing; Decentralized finance; Smart contracts; Blockchain technology;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • M15 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - IT Management
    • M42 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - Auditing

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