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Interest rate rules in decentralized finance : evidence from compound
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Chaudhary, Amit, Kozhan, Roman and Viswanath-Natraj, Ganesh (2023) Interest rate rules in decentralized finance : evidence from compound. In: 4th International Conference on Blockchain Economics, Security and Protocols (Tokenomics 2022). Published in: Open Access Series in Informatics (OASIcs), 110 5:1-5:6. doi:10.4230/OASIcs.Tokenomics.2022.5
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Official URL: https://drops.dagstuhl.de/entities/document/10.423...
Abstract
We study the fundamentals of interest rate rules on the decentralized finance protocol Compound. Interest rates are set by the governance of the protocol, and are based on the utilization of an asset: which is the ratio of a cryptocurrency that is borrowed to its total supply in the protocol. We discuss factors that determine the slope parameters of interest rate rules. Slope parameters are typically higher for more volatile cryptocurrencies. We argue liquidation risk can explain the cross-sectional variation in interest rate rules. We also draw parallels between these rules to the demand for loanable funds in traditional money markets.
Item Type: | Conference Item (Paper) | ||||
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Subjects: | H Social Sciences > HB Economic Theory H Social Sciences > HG Finance |
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Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
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Library of Congress Subject Headings (LCSH): | Cryptocurrencies, Digital currency, Financial institutions -- Effect of technological innovations on, Blockchains (Databases), Monetary policy, Interest rates | ||||
Series Name: | Open Access Series in Informatics (OASIcs) | ||||
Journal or Publication Title: | Open Access Series in Informatics (OASIcs) | ||||
Publisher: | Schloss Dagstuhl — Leibniz-Zentrum für Informatik | ||||
Place of Publication: | Dagstuhl, Germany | ||||
Official Date: | 24 July 2023 | ||||
Dates: |
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Volume: | 110 | ||||
Page Range: | 5:1-5:6 | ||||
DOI: | 10.4230/OASIcs.Tokenomics.2022.5 | ||||
Status: | Peer Reviewed | ||||
Publication Status: | Published | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Date of first compliant deposit: | 13 December 2023 | ||||
Date of first compliant Open Access: | 13 December 2023 | ||||
Conference Paper Type: | Paper | ||||
Title of Event: | 4th International Conference on Blockchain Economics, Security and Protocols (Tokenomics 2022) | ||||
Type of Event: | Conference |
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