License: Creative Commons Attribution 4.0 International license (CC BY 4.0)
When quoting this document, please refer to the following
DOI: 10.4230/OASIcs.Tokenomics.2022.5
URN: urn:nbn:de:0030-drops-184226
URL: http://dagstuhl.sunsite.rwth-aachen.de/volltexte/2023/18422/
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Chaudhary, Amit ; Kozhan, Roman ; Viswanath-Natraj, Ganesh

Interest Rate Rules in Decentralized Finance: Evidence from Compound

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OASIcs-Tokenomics-2022-5.pdf (0.5 MB)

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.

BibTeX - Entry

@InProceedings{chaudhary_et_al:OASIcs.Tokenomics.2022.5,
  author =	{Chaudhary, Amit and Kozhan, Roman and Viswanath-Natraj, Ganesh},
  title =	{{Interest Rate Rules in Decentralized Finance: Evidence from Compound}},
  booktitle =	{4th International Conference on Blockchain Economics, Security and Protocols (Tokenomics 2022)},
  pages =	{5:1--5:6},
  series =	{Open Access Series in Informatics (OASIcs)},
  ISBN =	{978-3-95977-274-7},
  ISSN =	{2190-6807},
  year =	{2023},
  volume =	{110},
  editor =	{Amoussou-Guenou, Yackolley and Kiayias, Aggelos and Verdier, Marianne},
  publisher =	{Schloss Dagstuhl -- Leibniz-Zentrum f{\"u}r Informatik},
  address =	{Dagstuhl, Germany},
  URL =		{https://drops.dagstuhl.de/opus/volltexte/2023/18422},
  URN =		{urn:nbn:de:0030-drops-184226},
  doi =		{10.4230/OASIcs.Tokenomics.2022.5},
  annote =	{Keywords: Cryptocurrency, decentralized finance lending protocols, monetary policy, stablecoins, governance token}
}

Keywords: Cryptocurrency, decentralized finance lending protocols, monetary policy, stablecoins, governance token
Collection: 4th International Conference on Blockchain Economics, Security and Protocols (Tokenomics 2022)
Issue Date: 2023
Date of publication: 24.07.2023

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