A financial economics approach to DeFi

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In January 2022, I was given the opportunity to talk about DeFi to MS Finance students for 6 hours. Since the students already have background on financial economics (e.g. fundamental theorems of asset pricing, security design under information asymmetry and limited commitment), I wanted to take a more academic approach to understanding DeFi. The result is a two-part lecture where I start with the basic understanding of blockchain, the importance of private key and the capabilities of tokens and smart contracts, before relating them to the classic problems of the financial system and take students on the journey from “DeFi 1.0” to “DeFi 2.0”.

Selected topics include:

  • The blockchain trilemma and gas cost
  • Tokenization and how to “raise funds” with tokens/coins
  • Single-collateral debt pools: MakerDAO-DAI, Sushi-Kashi
  • Multi-collateral debt pools: Compound
  • Yield farming: COMP distribution
  • Stablecoin collateralization/reserve: USDT, Frax, UST
  • Automated pricing and swap: Uniswap
  • Capital efficiency and repeated leverage: Abracadabra
  • Hot money and protocol-owned liquidity: OlympusDAO

Here are the recordings. I hope you find them useful. If you have feedbacks or questions, please leave them in the YouTube comment section. Would love to hear from you all.

Thanks for tuning in!

Part one
Part two

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