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What drives DeFi market returns?
[Quels sont les facteurs qui déterminent les rendements du marché DeFi ?]

Author

Listed:
  • Florentina Şoiman

    (CASC - Calcul Algébrique et Symbolique, Sécurité, Systèmes Complexes, Codes et Cryptologie - LJK - Laboratoire Jean Kuntzmann - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes, CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes)

  • Jean-Guillaume Dumas

    (CASC - Calcul Algébrique et Symbolique, Sécurité, Systèmes Complexes, Codes et Cryptologie - LJK - Laboratoire Jean Kuntzmann - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes)

  • Sonia Jimenez-Garces

    (CERAG - Centre d'études et de recherches appliquées à la gestion - UGA - Université Grenoble Alpes)

Abstract

Decentralized Finance (DeFi) is a nascent set of financial services, using tokens, smart contracts, and blockchain technology as financial instruments. We investigate 3 possible drivers of DeFi returns: exposure to the cryptocurrency market, the network effect, and the valuation ratio. As DeFi tokens are distinct from classical cryptocurrencies, we designed a new dedicated market index, denoted iDeFiX. We compare our index with the one created by Nasdaq and obtain similar results. First, we show that DeFi tokens returns are driven by their own network variables and the cryptocurrency market. We construct a valuation ratio for the DeFi market by dividing the Total Value Locked (TVL) by the Market Capitalization (MC). Our findings do not support the assumption regarding TVL/MC exposure. Overall, our empirical study shows that the impact of the cryptocurrency market on DeFi returns is stronger than any other considered driver and provides superior explanatory power.

Suggested Citation

  • Florentina Şoiman & Jean-Guillaume Dumas & Sonia Jimenez-Garces, 2023. "What drives DeFi market returns? [Quels sont les facteurs qui déterminent les rendements du marché DeFi ?]," Post-Print hal-03625891, HAL.
    • Handle: RePEc:hal:journl:hal-03625891
    DOI: 10.1016/j.intfin.2023.101786
    Note: View the original document on HAL open archive server: https://hal.science/hal-03625891v2
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    Cited by:

    1. Mensi, Walid & Gubareva, Mariya & Kang, Sang Hoon, 2024. "Frequency connectedness between DeFi and cryptocurrency markets," The Quarterly Review of Economics and Finance, Elsevier, vol. 93(C), pages 12-27.
    2. Yichen Luo & Yebo Feng & Jiahua Xu & Paolo Tasca, 2024. "Piercing the Veil of TVL: DeFi Reappraised," Papers 2404.11745, arXiv.org, revised May 2024.

    More about this item

    Keywords

    financial return; DeFi token; index; asset pricing;
    All these keywords.

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