Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/281093 
Year of Publication: 
2022
Series/Report no.: 
Queen’s Economics Department Working Paper No. 1489
Publisher: 
Queen's University, Department of Economics, Kingston (Ontario)
Abstract: 
In this viewpoint article, we provide an analysis of the value proposition of De(centralized) Fi(nance) and its limitations using a simple stylized model of collateralized lending. DeFi uses a decentralized ledger to run smart contracts that automatically enforce the terms of a lending contract and safeguard the collateral. DeFi can lower the costs asso- ciated with intermediated lending and improve financial inclusion. Limitations are the volatility of crypto collateral and stablecoins used for settlement, the possible incom- pleteness of smart contracts and the lack of a reliable oracle. A proper infrastructure reducing such limiations could improve the value of DeFi.
Subjects: 
Decentralized Finance
Cryptocurrency
Stablecoins
Collateralized Lending
JEL: 
G2
Document Type: 
Working Paper

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