Paper: arXiv 2602.03874

Authors: Murad Farzulla, Andrew Maksakov

Abstract

We introduce the Aggregated Systemic Risk Index (ASRI), comprising four weighted sub-indices: Stablecoin Concentration Risk (30%), DeFi Liquidity Risk (25%), Contagion Risk (25%), and Regulatory Opacity Risk (20%). Using data from DeFi Llama, Federal Reserve FRED, and on-chain analytics, we validate against four historical crises (Terra/Luna, Celsius/3AC, FTX, SVB). Event study analysis detects significant abnormal signals for all four (t-statistics 5.47-32.64, p < 0.01), with threshold-based detection achieving 30-day average lead time for three of four events. Walk-forward validation confirms 4/4 out-of-sample detection (18-day average lead), ruling out look-ahead bias. A three-regime HMM identifies distinct risk states with >97% persistence; structural stability tests pass (Chow p = 0.993). Benchmarking against Diebold-Yilmaz connectedness shows equivalent detection (75%) with higher precision (33.5% vs. 22.4%). Out-of-sample specificity testing on 2024-2025 data confirms zero false positives, correctly classifying the $1.5B Bybit hack as non-systemic. ASRI captures DeFi-specific vulnerabilities – composability risk, flash loan exposure, and tokenized RWA linkages – that SRISK and CoVaR cannot accommodate.

Complexity vs Empirical Score

  • Math Complexity: 5.5/10
  • Empirical Rigor: 8.8/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper presents an exceptionally thorough empirical evaluation of a new crypto systemic risk index (ASRI). It features extensive backtesting, out-of-sample walk-forward validation, false positive analysis, and benchmarking against established frameworks like Diebold-Yilmaz.

Research Flowchart

  flowchart TD
    A[Research Goal: Develop & Validate ASRI for Crypto Systemic Risk] --> B[Data Inputs: DeFi Llama, FRED & On-Chain Analytics]
    
    B --> C[Construct Weighted Sub-Indices: Stablecoin 30%, DeFi 25%, Contagion 25%, Reg Opacity 20%]
    
    C --> D[Computational Analysis: Event Study, Walk-Forward Validation & 3-Regime HMM]
    
    D --> E[Backtesting & Benchmarking: Validated against 4 Crises vs Diebold-Yilmaz, SRISK, CoVaR]
    
    E --> F[Key Outcomes: 18-30 Day Lead Time, High Precision 33.5%, 0 False Positives in 2024-2025]

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0 of 78 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.