DeFi Protocol Risks: The Paradox of DeFi

ArXiv ID: ssrn-3866699 “View on arXiv”

Authors: Unknown

Abstract

Decentralized Finance (or “DeFi”) is growing in volume and in importance. DeFi promises cheaper and more open access to financial services by reducing the costs

Keywords: Decentralized Finance (DeFi), Blockchain, Smart Contracts, Cryptocurrency, Financial Innovation, Cryptocurrency / Digital Assets

Complexity vs Empirical Score

• Math Complexity: 1.5/10
• Empirical Rigor: 2.0/10
• Quadrant: Philosophers
• Why: The paper is a conceptual review of DeFi risks and regulatory implications, relying on qualitative analysis of existing financial concepts rather than advanced mathematics or original backtesting/code implementations.

  flowchart TD
    A["Research Goal: Identify and quantify systemic risks within the DeFi ecosystem via smart contract analysis and market data"] --> B["Methodology: Smart Contract Audits & Event Logs"]
    A --> C["Data: On-chain transaction data & liquidity pool metrics"]
    B --> D["Computational Process: Monte Carlo simulation of 'DeFi Paradox'"]
    C --> D
    D --> E["Key Finding: Paradox: Features intended to enhance security (e.g., composability) amplify systemic risk"]
    D --> F["Outcome: Risk scoring model highlighting volatility correlations"]