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Decentralized finance research and developments around the World

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  • Ozili, Peterson K

Abstract

Decentralized finance is financial services offered on a public blockchain over the internet. This paper reviews the decentralized finance (DeFi) research and development around the world. The findings of the literature review are that decentralized finance offers many benefits such as broadening financial inclusion; encouraging permission-less innovation; eliminating the need for intermediaries; ensuring the immutability of transactions; censorship resistance and making cross-border transactions cheaper. The associated risks include execution risk in smart contracts, legal liability risk, data theft risk, interconnectedness risk, external data risk, and greater propensity for illicit activity using DeFi applications. The review of existing DeFi research show that there are few studies on DeFi, and a large number of DeFi research studies are non-empirical studies. Most studies hold a positive view about DeFi. They emphasize the benefits of DeFi in great depth but the challenges of DeFi were not analysed in great depth, and there are no critical studies on DeFi. Observations on DeFi developments from around the world show that there is growing interest in decentralized finance in Europe, U.S., Asia and Oceania. There are concerns that regulating decentralized finance can impede growth in decentralized finance markets in Asia. There are also concerns that banning crypto assets can hinder the growth of decentralized finance in African countries where regulators do not fully permit blockchain-enabled cryptocurrencies. Several policy issues associated with DeFi are discussed. Areas for further research are provided to advance the literature on decentralized finance.

Suggested Citation

  • Ozili, Peterson K, 2022. "Decentralized finance research and developments around the World," MPRA Paper 114338, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:114338
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    File URL: https://mpra.ub.uni-muenchen.de/114338/1/MPRA_paper_114338.pdf
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    References listed on IDEAS

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    1. Chen, Yan & Bellavitis, Cristiano, 2020. "Blockchain disruption and decentralized finance: The rise of decentralized business models," Journal of Business Venturing Insights, Elsevier, vol. 13(C).
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Gunay, Samet & Goodell, John W. & Muhammed, Shahnawaz & Kirimhan, Destan, 2023. "Frequency connectedness between FinTech, NFT and DeFi: Considering linkages to investor sentiment," International Review of Financial Analysis, Elsevier, vol. 90(C).
    2. Maria V. Sigova & Igor K. Klyuchnikov & Oleg I. Klyuchnikov, 2024. "Sustainability and Security of Green Finance from the Multi-agent Games Perspective," Finansovyj žhurnal — Financial Journal, Financial Research Institute, Moscow 125375, Russia, issue 1, pages 78-95, February.
    3. Le Tran Ha Trang & Nguyen Thi Dieu Chi & Cao Thi Y Nhi & Dang Thi Thuy Hong, 2024. "Impact of green finance and environmental tax on sustainable development: Evidence from Vietnam," Environmental & Socio-economic Studies, Sciendo, vol. 12(3), pages 1-10.
    4. Mohamed Nihal Saleem & Yianni Doumenis & Epameinondas Katsikas & Javad Izadi & Dimitrios Koufopoulos, 2024. "Decrypting Cryptocurrencies: An Exploration of the Impact on Financial Stability," JRFM, MDPI, vol. 17(5), pages 1-21, April.
    5. Yuqi Chen & Yifan Li & Kyrie Zhixuan Zhou & Xiaokang Fu & Lingbo Liu & Shuming Bao & Daniel Sui & Luyao Zhang, 2024. "Global Public Sentiment on Decentralized Finance: A Spatiotemporal Analysis of Geo-tagged Tweets from 150 Countries," Papers 2409.00843, arXiv.org.
    6. Bakhtiar, Tiam & Luo, Xiaojun & Adelopo, Ismail, 2023. "Network effects and store-of-value features in the cryptocurrency market," Technology in Society, Elsevier, vol. 74(C).
    7. Ghaemi Asl, Mahdi & Ben Jabeur, Sami, 2024. "Tail connectedness of DeFi and CeFi with accessible banking pillars: Unveiling novel insights through wavelet and quantile cross-spectral coherence analyses," International Review of Financial Analysis, Elsevier, vol. 95(PB).

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    More about this item

    Keywords

    decentralized finance; DeFi; blockchain; ethereum; cryptocurrency; distributed ledger technology; protocol; token; total valued locked; smart contract; digital currency; literature review.;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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