BIS offers an exploratory model to explore DeFi integration with TradFi and its risks.

The Bank for International Settlements has taken a look under the hood of the decentralized finance (DeFi) monster in a new working paper and presented a DeFi stack reference model (DSR) to illustrate the functionality and risks of the technology. The report discussed the integration of DeFi with traditional finance and suggested ways to assess risk during this integration.

“DeFi is a programmable financial ecosystem that allows users to trade, lend, and invest without relying on a central intermediary. This paper takes a detailed look at the underlying technology, its economic potential, and the associated risks,” the Bank for International Settlements tweeted on 19 January 2023

The paper details the architecture, technical primitives, and functionality of DeFi protocols. “There is still a lack of deep understanding of DeFi in many circles,” the authors write, “requiring a dedicated base to improve working knowledge of the technology.” The effort is worth it, the paper argues, because of DeFi innovation. “It is not yet clear if DeFi will continue to expand in the future and to what extent. […] However, we consider DeFi to be a hot topic as it uses innovative technologies that could shape the future financial ecosystem.” Algorithmic automation, “competitive financial engineering” and transparency “are of interest far beyond the cryptocurrency markets,” the document says. By competitive engineering, the authors meant composability, the combination of smart contracts to form complex and unique financial products.

The DSR model divides DeFi into three layers: interface, application, and deployment, and the sub-layers take into account the differences seen in DeFi technologies. In their examples, the researchers considered various tokens, blockchains, and financial services. Escape from Terra (LUNA) has been considered in detail as a clear example of the effectiveness of the author’s investigative technique.

This working paper appeared the same week that the World Economic Forum (WEF) published its Decentralized Autonomous Organizations Review. The two works complement each other well, as the WEF publication was just as comprehensive, but not technical. BIS regularly participates in research on central bank digital currencies. He has taken a very cautious stance on cryptocurrencies. Recently, from January 1, 2025, he introduced a 2% ceiling for crypto assets in the reserves of international banks.

Related posts:

Arti mimpi gigi copot bagian atas depan ada juga yang bagian bawah semua hilang tapi tumbuh lagi. Terjadi di siang hari atau malam gigi goyang atas patah semua atau sebagian, taring copot dan lain…

We may virtually divide our Kubernetes cluster according on the needs of the team, the applications, and the environment by using namespace. The entire Kubernetes cluster can be divided into numerous…

The second largest cause of irritation to the entirety of humankind after Joffrey Baratheon from GOT are the relatives who are ready to take every ounce of credit for your success by recounting…