Risks in DeFi-Lending Protocols - An Exploratory Categorization and Analysis of Interest Rate Differences

Marco Huber; Vinzenz Treytl

doi:10.1007/978-3-031-14343-4_24

Risks in DeFi-Lending Protocols - An Exploratory Categorization and Analysis of Interest Rate Differences

Marco Huber, Vinzenz Treytl^*

^*Corresponding author for this work

Publication: Chapter in book/Conference proceeding › Contribution to conference proceedings

Abstract

According to well-established principles of risk management, interest rates reflect different levels of risk. Understanding this level of risk is crucial for investors when making investment decisions. In this paper, risk factors in DeFi-lending are identified and categorized within a framework which is not only focused on technical but also on financial aspects. In a subsequent step, the influence of unsystematic risk factors on interest rates are explored to tentatively assess the validity of the literature-derived framework. Our observations indicate that operational risks emanating from the underlying layer-1-solution do seem to have a strong influence. Furthermore, first indications for the validity of scalability challenges and smart contract risks were found. For oracle risks as well as governance risks our approach yielded no results.

Original language	English
Title of host publication	Database and Expert Systems Applications - DEXA 2022 Workshops
Subtitle of host publication	33rd International Conference, DEXA 2022, Vienna, Austria, August 22–24, 2022, Proceedings
Place of Publication	Cham
Publisher	Springer
Pages	258-269
ISBN (Electronic)	978-3-031-14343-4
ISBN (Print)	978-3-031-14342-7
DOIs	https://doi.org/10.1007/978-3-031-14343-4_24
Publication status	Published - 2022
Event	33rd Innternational Conference on Database and Expert Systems Application - WU Wien, Wien, Austria Duration: 22 Aug 2022 → 24 Aug 2022 Conference number: 33 https://www.dexa.org/

Publication series

Series	Communications in Computer and Information Science
Volume	1633
ISSN	1865-0929

Conference

Conference	33rd Innternational Conference on Database and Expert Systems Application
Abbreviated title	Dexa 2022
Country/Territory	Austria
City	Wien
Period	22/08/22 → 24/08/22
Internet address	https://www.dexa.org/

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10.1007/978-3-031-14343-4_24

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Huber, Marco ; Treytl, Vinzenz. / Risks in DeFi-Lending Protocols - An Exploratory Categorization and Analysis of Interest Rate Differences. Database and Expert Systems Applications - DEXA 2022 Workshops: 33rd International Conference, DEXA 2022, Vienna, Austria, August 22–24, 2022, Proceedings. Cham : Springer, 2022. pp. 258-269 (Communications in Computer and Information Science, Vol. 1633).

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abstract = "According to well-established principles of risk management, interest rates reflect different levels of risk. Understanding this level of risk is crucial for investors when making investment decisions. In this paper, risk factors in DeFi-lending are identified and categorized within a framework which is not only focused on technical but also on financial aspects. In a subsequent step, the influence of unsystematic risk factors on interest rates are explored to tentatively assess the validity of the literature-derived framework. Our observations indicate that operational risks emanating from the underlying layer-1-solution do seem to have a strong influence. Furthermore, first indications for the validity of scalability challenges and smart contract risks were found. For oracle risks as well as governance risks our approach yielded no results.",

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Huber, M & Treytl, V 2022, Risks in DeFi-Lending Protocols - An Exploratory Categorization and Analysis of Interest Rate Differences. in Database and Expert Systems Applications - DEXA 2022 Workshops: 33rd International Conference, DEXA 2022, Vienna, Austria, August 22–24, 2022, Proceedings. Springer, Cham, Communications in Computer and Information Science, vol. 1633, pp. 258-269, 33rd Innternational Conference on Database and Expert Systems Application, Wien, Austria, 22/08/22. https://doi.org/10.1007/978-3-031-14343-4_24

Risks in DeFi-Lending Protocols - An Exploratory Categorization and Analysis of Interest Rate Differences. / Huber, Marco; Treytl, Vinzenz.
Database and Expert Systems Applications - DEXA 2022 Workshops: 33rd International Conference, DEXA 2022, Vienna, Austria, August 22–24, 2022, Proceedings. Cham: Springer, 2022. p. 258-269 (Communications in Computer and Information Science, Vol. 1633).

Publication: Chapter in book/Conference proceeding › Contribution to conference proceedings

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N2 - According to well-established principles of risk management, interest rates reflect different levels of risk. Understanding this level of risk is crucial for investors when making investment decisions. In this paper, risk factors in DeFi-lending are identified and categorized within a framework which is not only focused on technical but also on financial aspects. In a subsequent step, the influence of unsystematic risk factors on interest rates are explored to tentatively assess the validity of the literature-derived framework. Our observations indicate that operational risks emanating from the underlying layer-1-solution do seem to have a strong influence. Furthermore, first indications for the validity of scalability challenges and smart contract risks were found. For oracle risks as well as governance risks our approach yielded no results.

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Huber M, Treytl V. Risks in DeFi-Lending Protocols - An Exploratory Categorization and Analysis of Interest Rate Differences. In Database and Expert Systems Applications - DEXA 2022 Workshops: 33rd International Conference, DEXA 2022, Vienna, Austria, August 22–24, 2022, Proceedings. Cham: Springer. 2022. p. 258-269. (Communications in Computer and Information Science, Vol. 1633). doi: 10.1007/978-3-031-14343-4_24