SoK: lending pools in decentralized finance

DOI10.1007/978-3-662-63958-0_40MaRDI QIDQ2670876zbMATH OpenOpenAlexFDO

Authors Massimo Bartoletti, James Hsin-yu Chiang, Alberto Lluch Lafuente

Publication date 1 June 2022

Full work available at URL https://arxiv.org/abs/2012.13230

Mathematics Subject Classification ID

Actuarial science and mathematical finance (91G99) Cryptography (94A60)

Abstract: Lending pools are decentralized applications which allow mutually untrusted users to lend and borrow crypto-assets. These applications feature complex, highly parametric incentive mechanisms to equilibrate the loan market. This complexity makes the behaviour of lending pools difficult to understand and to predict: indeed, ineffective incentives and attacks could potentially lead to emergent unwanted behaviours. Reasoning about lending pools is made even harder by the lack of executable models of their behaviour: to precisely understand how users interact with lending pools, eventually one has to inspect their implementations, where the incentive mechanisms are intertwined with low-level implementation details. Further, the variety of existing implementations makes it difficult to distill the common aspects of lending pools. We systematize the existing knowledge about lending pools, leveraging a new formal model of interactions with users, which reflects the archetypal features of mainstream implementations. This enables us to prove some general properties of lending pools, such as the correct handling of funds, and to precisely describe vulnerabilities and attacks. We also discuss the role of lending pools in the broader context of decentralized finance.

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Cites work

• Certifying Findel derivatives for blockchain
• On the security of public key protocols
• P2DEX: privacy-preserving decentralized cryptocurrency exchange

Cited in

(10)

• Attacking the DeFi ecosystem with flash loans for fun and profit
• Liquidations: DeFi on a knife-edge
• Formal analysis of composable DeFi protocols
• How to exploit a DeFi project
• DeFi as an information aggregator
• A theory of Automated Market Makers in DeFi
• Promise: leveraging future gains for collateral reduction
• Speculative multipliers on DeFi: quantifying on-chain leverage risks
• Decentralized Governance of Stablecoins with Closed Form Valuation
• Mitigating decentralized finance liquidations with reversible call options

Describes a project that uses

Uses Software

• GitHub

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