BIS proposes research model to study DeFi’s integration with TradFi and its risks

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BIS proposes research model to study DeFi’s integration with TradFi and its risks
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BIS provides a guided look at all that DeFi can do.

The Bank for International Settlements looked under the hood of decentralized finance in a new working paper and introduced the DeFi stack reference model to illustrate the technology’s functionality and risks. The report discussed the integration of DeFi with traditional finance and suggested ways to assess its risks during that integration.the architecture, technical primitives and functionalities of DeFi protocols in considerable technical detail.

Algorithmic automation, “competitive financial engineering” and transparency “are of interest well beyond cryptocurrency markets,” the paper said. By competitive engineering the authors meant composability, the combining of smart contracts to form complex and unique financial products. The DSR model divides DeFi into three layers: interface, application and settlement, with sublayers allowing for the variation seen across DeFi technologies. The paper used a variety of tokens, blockchains and financial services in its examples. The run on Terra was discussed in detail for its informational value and as an example of the effectiveness of the authors’ investigation technique.

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