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Measuring Asset Composability as a Proxy for DeFi Integration

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Book cover Financial Cryptography and Data Security. FC 2021 International Workshops (FC 2021)

Part of the book series: Lecture Notes in Computer Science ((LNSC,volume 12676))

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Abstract

Decentralized financial (DeFi) applications on the Ethereum blockchain are highly interoperable because they share a single state in a deterministic computational environment. Stakeholders can deposit claims on assets, referred to as ‘liquidity shares’, across applications producing effects equivalent to rehypothecation in traditional financial systems. We seek to understand the degree to which this practice may contribute to financial integration on Ethereum by examining transactions in ‘composed’ derivatives for the assets DAI, USDC, USDT, ETH and tokenized BTC for the full set of 344.8 million Ethereum transactions computed in 2020. We identify a salient trend for ‘composing’ assets in multiple sequential generations of derivatives and comment on potential systemic implications for the Ethereum network.

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Notes

  1. 1.

    defipulse.com, as of 31st Jan 2020.

  2. 2.

    Bitcoin (BTC) is a non-native asset on Ethereum, represented by ‘wrapped bitcoin’ locked on the original blockchain. We compile the three largest representations of Bitcoin on Ethereum into a single category, assigning the category an initial distance of one.

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Author information

Authors and Affiliations

  1. University of Copenhagen, Copenhagen, Denmark

    Victor von Wachter, Johannes Rude Jensen & Omri Ross

  2. eToroX Labs, Copenhagen, Denmark

    Johannes Rude Jensen & Omri Ross

Authors
  1. Victor von Wachter
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  2. Johannes Rude Jensen
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  3. Omri Ross
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Corresponding author

Correspondence to Victor von Wachter .

Editor information

Editors and Affiliations

  1. University of Michigan–Ann Arbor, Ann Arbor, MI, USA

    Matthew Bernhard

  2. Computer Science and Mathematics, Stirling University, Stirling, UK

    Andrea Bracciali

  3. Imperial College London, London, UK

    Lewis Gudgeon

  4. Norwegian University of Science and Technology, Trondheim, Norway

    Thomas Haines

  5. Ithaca College, Ithaca, USA

    Ariah Klages-Mundt

  6. Department of Computer Science, Georgetown University, Washington, WA, USA

    Shin'ichiro Matsuo

  7. Imperial College London, London, UK

    Daniel Perez

  8. Dipartimento di Matematica, University of Trento, Trento, Trento, Italy

    Massimiliano Sala

  9. Imperial College London, London, UK

    Sam Werner

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© 2021 International Financial Cryptography Association

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von Wachter, V., Jensen, J.R., Ross, O. (2021). Measuring Asset Composability as a Proxy for DeFi Integration. In: Bernhard, M., et al. Financial Cryptography and Data Security. FC 2021 International Workshops. FC 2021. Lecture Notes in Computer Science(), vol 12676. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-662-63958-0_9

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  • DOI: https://doi.org/10.1007/978-3-662-63958-0_9

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  • Publisher Name: Springer, Berlin, Heidelberg

  • Print ISBN: 978-3-662-63957-3

  • Online ISBN: 978-3-662-63958-0

  • eBook Packages: Computer ScienceComputer Science (R0)

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