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A Short Survey on Business Models of Decentralized Finance (DeFi) Protocols

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Financial Cryptography and Data Security. FC 2022 International Workshops (FC 2022)

Part of the book series: Lecture Notes in Computer Science ((LNCS,volume 13412))

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Abstract

Decentralized Finance (DeFi) services are moving traditional financial operations to the Internet of Value (IOV) by exploiting smart contracts, distributed ledgers, and transactions among different protocols. The exponential increase of the Total Value Locked (TVL) in DeFi foreshadows a bright future for automated money transfers in a plethora of services. In this short survey paper, we describe the business models of various DeFi protocol types—namely, Protocols for Loanable Funds (PLFs), Decentralized Exchanges (DEXs), and Yield Aggregators. We then abstract and compare the general business models of those protocol types. Finally, we provide open research challenges that will involve different domains such as economics, finance, and computer science.

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Notes

  1. 1.

    The TVL is commonly defined as the sum of all assets’ value, denominated in USD, deposited in a DeFi protocol, and therefore locked in the underlying set of smart contracts.

  2. 2.

    2021-10-31, https://defipulse.com/.

  3. 3.

    Flash Loans are a special type of loan where the borrower must return the borrowed amount plus interest in the same transaction without the need for collateral. An in-depth explanation can be found in [10].

  4. 4.

    Note that the protocol fee is applied on the swap fee.

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Author information

Authors and Affiliations

  1. École Polytechnique Fédérale de Lausanne, Lausanne, Switzerland

    Teng Andrea Xu & Jiahua Xu

  2. University College London, London, UK

    Jiahua Xu

  3. The DLT Science Foundation, London, UK

    Jiahua Xu

Authors
  1. Teng Andrea Xu
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  2. Jiahua Xu
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Corresponding authors

Correspondence to Teng Andrea Xu or Jiahua Xu .

Editor information

Editors and Affiliations

  1. Georgetown University, Washington, DC, USA

    Shin'ichiro Matsuo

  2. Imperial College London, London, UK

    Lewis Gudgeon

  3. Cornell University, Ithaca, NY, USA

    Ariah Klages-Mundt

  4. Imperial College London, London, UK

    Daniel Perez Hernandez

  5. Imperial College London, London, UK

    Sam Werner

  6. The Australian National University, Canberra, ACT, Australia

    Thomas Haines

  7. Western University, London, ON, Canada

    Aleksander Essex

  8. University of Stirling, Stirling, UK

    Andrea Bracciali

  9. University of Trento, Trento, Trento, Italy

    Massimiliano Sala

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Xu, T.A., Xu, J. (2023). A Short Survey on Business Models of Decentralized Finance (DeFi) Protocols. In: Matsuo, S., et al. Financial Cryptography and Data Security. FC 2022 International Workshops. FC 2022. Lecture Notes in Computer Science, vol 13412. Springer, Cham. https://doi.org/10.1007/978-3-031-32415-4_13

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  • DOI: https://doi.org/10.1007/978-3-031-32415-4_13

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  • Publisher Name: Springer, Cham

  • Print ISBN: 978-3-031-32414-7

  • Online ISBN: 978-3-031-32415-4

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