Smart Contracts

Design of a Decentralized Fixed-Income Lending Automated Market Maker Protocol Supporting Arbitrary Maturities ArXiv ID: 2512.16080 “View on arXiv” Authors: Tianyi Ma Abstract In decentralized finance (DeFi), designing fixed-income lending automated market makers (AMMs) is extremely challenging due to time-related complexities. Moreover, existing protocols only support single-maturity lending. Building upon the BondMM protocol, this paper argues that its mathematical invariants are sufficiently elegant to be generalized to arbitrary maturities. This paper thus propose an improved design, BondMM-A, which supports lending activities of any maturity. By integrating fixed-income instruments of varying maturities into a single smart contract, BondMM-A offers users and liquidity providers (LPs) greater operational freedom and capital efficiency. Experimental results show that BondMM-A performs excellently in terms of interest rate stability and financial robustness. ...

A Microstructure Analysis of Coupling in CFMMs ArXiv ID: 2510.06095 “View on arXiv” Authors: Althea Sterrett, Austin Adams Abstract The programmable and composable nature of smart contract protocols has enabled the emergence of novel market structures and asset classes that are architecturally frictional to implement in traditional financial paradigms. This fluidity has produced an understudied class of market dynamics, particularly in coupled markets where one market serves as an oracle for the other. In such market structures, purchases or liquidations through the intermediate asset create coupled price action between the intermediate and final assets; leading to basket inflation or deflation when denominated in the riskless asset. This paper examines the microstructure of this inflationary dynamic given two constant function market makers (CFMMs) as the intermediate market structures; attempting to quantify their contributions to the former relative to familiar pool metrics such as price drift, trade size, and market depth. Further, a concrete case study is developed, where both markets are constant product markets. The intention is to shed light on the market design process within such coupled environments. ...

Smart Contract Adoption under Discrete Overdispersed Demand: A Negative Binomial Optimization Perspective ArXiv ID: 2510.05487 “View on arXiv” Authors: Jinho Cha, Sahng-Min Han, Long Pham Abstract Effective supply chain management under high-variance demand requires models that jointly address demand uncertainty and digital contracting adoption. Existing research often simplifies demand variability or treats adoption as an exogenous decision, limiting relevance in e-commerce and humanitarian logistics. This study develops an optimization framework combining dynamic Negative Binomial (NB) demand modeling with endogenous smart contract adoption. The NB process incorporates autoregressive dynamics in success probability to capture overdispersion and temporal correlation. Simulation experiments using four real-world datasets, including Delhivery Logistics and the SCMS Global Health Delivery system, apply maximum likelihood estimation and grid search to optimize adoption intensity and order quantity. Across all datasets, the NB specification outperforms Poisson and Gaussian benchmarks, with overdispersion indices exceeding 1.5. Forecasting comparisons show that while ARIMA and Exponential Smoothing achieve similar point accuracy, the NB model provides superior stability under high variance. Scenario analysis reveals that when dispersion exceeds a critical threshold (r > 6), increasing smart contract adoption above 70% significantly enhances profitability and service levels. This framework offers actionable guidance for balancing inventory costs, service levels, and implementation expenses, highlighting the importance of aligning digital adoption strategies with empirically observed demand volatility. ...

A Stream Pipeline Framework for Digital Payment Programming based on Smart Contracts ArXiv ID: 2508.21075 “View on arXiv” Authors: Zijia Meng, Victor Feng Abstract Digital payments play a pivotal role in the burgeoning digital economy. Moving forward, the enhancement of digital payment systems necessitates programmability, going beyond just efficiency and convenience, to meet the evolving needs and complexities. Smart contract platforms like Central Bank Digital Currency (CBDC) networks and blockchains support programmable digital payments. However, the prevailing paradigm of programming payment logics involves coding smart contracts with programming languages, leading to high costs and significant security challenges. A novel and versatile method for payment programming on DLTs was presented in this paper - transforming digital currencies into token streams, then pipelining smart contracts to authorize, aggregate, lock, direct, and dispatch these streams efficiently from source to target accounts. By utilizing a small set of configurable templates, a few specialized smart contracts could be generated, and support most of payment logics through configuring and composing them. This approach could substantially reduce the cost of payment programming and enhance security, self-enforcement, adaptability, and controllability, thus hold the potential to become an essential component in the infrastructure of digital economy. ...

Investigating Similarities Across Decentralized Financial (DeFi) Services ArXiv ID: 2404.00034 “View on arXiv” Authors: Unknown Abstract We explore the adoption of graph representation learning (GRL) algorithms to investigate similarities across services offered by Decentralized Finance (DeFi) protocols. Following existing literature, we use Ethereum transaction data to identify the DeFi building blocks. These are sets of protocol-specific smart contracts that are utilized in combination within single transactions and encapsulate the logic to conduct specific financial services such as swapping or lending cryptoassets. We propose a method to categorize these blocks into clusters based on their smart contract attributes and the graph structure of their smart contract calls. We employ GRL to create embedding vectors from building blocks and agglomerative models for clustering them. To evaluate whether they are effectively grouped in clusters of similar functionalities, we associate them with eight financial functionality categories and use this information as the target label. We find that in the best-case scenario purity reaches .888. We use additional information to associate the building blocks with protocol-specific target labels, obtaining comparable purity (.864) but higher V-Measure (.571); we discuss plausible explanations for this difference. In summary, this method helps categorize existing financial products offered by DeFi protocols, and can effectively automatize the detection of similar DeFi services, especially within protocols. ...

The Democratization of Wealth Management: Hedged Mutual Fund Blockchain Protocol ArXiv ID: 2405.02302 “View on arXiv” Authors: Unknown Abstract We develop several innovations to bring the best practices of traditional investment funds to the blockchain landscape. Specifically, we illustrate how: 1) fund prices can be updated regularly like mutual funds; 2) performance fees can be charged like hedge funds; 3) mutually hedged blockchain investment funds can operate with investor protection schemes, such as high water marks; and 4) measures to offset trading related slippage costs when redemptions happen. Using our concepts - and blockchain technology - traditional funds can calculate performance fees in a simplified manner and alleviate several operational issues. Blockchain can solve many problems for traditional finance, while tried and tested wealth management techniques can benefit decentralization, speeding its adoption. We provide detailed steps - including mathematical formulations and instructive pointers - to implement these ideas and discuss how our designs overcome several blockchain bottlenecks, making smart contracts smarter. We provide numerical illustrations of several scenarios related to our mechanisms. ...

Expiring Assets in Automated Market Makers ArXiv ID: 2401.04289 “View on arXiv” Authors: Unknown Abstract An automated market maker (AMM) is a state machine that manages pools of assets, allowing parties to buy and sell those assets according to a fixed mathematical formula. AMMs are typically implemented as smart contracts on blockchains, and its prices are kept in line with the overall market price by arbitrage: if the AMM undervalues an asset with respect to the market, an “arbitrageur” can make a risk-free profit by buying just enough of that asset to bring the AMM’s price back in line with the market. AMMs, however, are not designed for assets that expire: that is, assets that cannot be produced or resold after a specified date. As assets approach expiration, arbitrage may not be able to reconcile supply and demand, and the liquidity providers that funded the AMM may have excessive exposure to risk due to rapid price variations. This paper formally describes the design of a decentralized exchange (DEX) for assets that expire, combining aspects of AMMs and limit-order books. We ensure liveness and market clearance, providing mechanisms for liquidity providers to control their exposure to risk and adjust prices dynamically in response to situations where arbitrage may fail. ...

Decentralized Finance: Protocols, Risks, and Governance ArXiv ID: 2312.01018 “View on arXiv” Authors: Unknown Abstract Financial markets are undergoing an unprecedented transformation. Technological advances have brought major improvements to the operations of financial services. While these advances promote improved accessibility and convenience, traditional finance shortcomings like lack of transparency and moral hazard frictions continue to plague centralized platforms, imposing societal costs. In this paper, we argue how these shortcomings and frictions are being mitigated by the decentralized finance (DeFi) ecosystem. We delve into the workings of smart contracts, the backbone of DeFi transactions, with an emphasis on those underpinning token exchange and lending services. We highlight the pros and cons of the novel form of decentralized governance introduced via the ownership of governance tokens. Despite its potential, the current DeFi infrastructure introduces operational risks to users, which we segment into five primary categories: consensus mechanisms, protocol, oracle, frontrunning, and systemic risks. We conclude by emphasizing the need for future research to focus on the scalability of existing blockchains, the improved design and interoperability of DeFi protocols, and the rigorous auditing of smart contracts. ...

DeFi Security: Turning The Weakest Link Into The Strongest Attraction ArXiv ID: 2312.00033 “View on arXiv” Authors: Unknown Abstract The primary innovation we pioneer – focused on blockchain information security – is called the Safe-House. The Safe-House is badly needed since there are many ongoing hacks and security concerns in the DeFi space right now. The Safe-House is a piece of engineering sophistication that utilizes existing blockchain principles to bring about greater security when customer assets are moved around. The Safe-House logic is easily implemented as smart contracts on any decentralized system. The amount of funds at risk from both internal and external parties – and hence the maximum one time loss – is guaranteed to stay within the specified limits based on cryptographic fundamentals. To improve the safety of the Safe-House even further, we adapt the one time password (OPT) concept to operate using blockchain technology. Well suited to blockchain cryptographic nuances, our secondary advancement can be termed the one time next time password (OTNTP) mechanism. The OTNTP is designed to complement the Safe-House making it even more safe. We provide a detailed threat assessment model – discussing the risks faced by DeFi protocols and the specific risks that apply to blockchain fund management – and give technical arguments regarding how these threats can be overcome in a robust manner. We discuss how the Safe-House can participate with other external yield generation protocols in a secure way. We provide reasons for why the Safe-House increases safety without sacrificing the efficiency of operation. We start with a high level intuitive description of the landscape, the corresponding problems and our solutions. We then supplement this overview with detailed discussions including the corresponding mathematical formulations and pointers for technological implementation. This approach ensures that the article is accessible to a broad audience. ...

The Rise and Fall of Cryptocurrencies: Defining the Economic and Social Values of Blockchain Technologies, assessing the Opportunities, and defining the Financial and Cybersecurity Risks of the Metaverse ArXiv ID: 2309.12322 “View on arXiv” Authors: Unknown Abstract This paper contextualises the common queries of “why is crypto crashing?” and “why is crypto down?”, the research transcends beyond the frequent market fluctuations to unravel how cryptocurrencies fundamentally work and the step-by-step process on how to create a cryptocurrency. The study examines blockchain technologies and their pivotal role in the evolving Metaverse, shedding light on topics such as how to invest in cryptocurrency, the mechanics behind crypto mining, and strategies to effectively buy and trade cryptocurrencies. Through an interdisciplinary approach, the research transitions from the fundamental principles of fintech investment strategies to the overarching implications of blockchain within the Metaverse. Alongside exploring machine learning potentials in financial sectors and risk assessment methodologies, the study critically assesses whether developed or developing nations are poised to reap greater benefits from these technologies. Moreover, it probes into both enduring and dubious crypto projects, drawing a distinct line between genuine blockchain applications and Ponzi-like schemes. The conclusion resolutely affirms the continuing dominance of blockchain technologies, underlined by a profound exploration of their intrinsic value and a reflective commentary by the author on the potential risks confronting individual investors. ...