[Paper Review] Decentralized Finance (DeFi): A Survey

Erya Jiang, Bo Qin+8 more|arXiv (Cornell University)|Aug 10, 2023

FinTech, Crowdfunding, Digital Finance13 citations

TL;DR

This survey categorizes DeFi applications by financial complexity, analyzes security risks across technical and economic dimensions, and identifies research gaps and directions.

ABSTRACT

Decentralized Finance (DeFi) is a new paradigm in the creation, distribution, and utilization of financial services via the integration of blockchain technology. Our research conducts a comprehensive introduction and meticulous classification of various DeFi applications. Beyond that, we thoroughly analyze these risks from both technical and economic perspectives, spanning multiple layers. We point out research gaps and revenues, covering technical advancements, innovative economics, and sociology and ecology optimization.

Motivation & Objective

• Provide a comprehensive introduction to DeFi and its ecosystem.
• Classify DeFi applications based on financial complexity into tool, basic functionality, and service levels.
• Analyze security risks in DeFi from technical and economic perspectives across infrastructure, protocol, and application layers.
• Identify research gaps and propose future directions in technology, economics, sociology, and ecology for DeFi.

Proposed method

• Perform a statistical analysis of DeFi literature from IEEE Xplore, ACM, and Springer, screening 15,598 articles.
• Propose a DeFi classification framework based on complexity (Table 1).
• Analyze DeFi risks across technical and economic dimensions with references to real-world incidents and academic work.
• Synthesize gaps and future research directions across technology, economics, and sociology/ecology.

Experimental results

Research questions

• RQ1 How can DeFi applications be categorized by the complexity of the financial services they provide?
• RQ2 What are the main technical and economic security risks in DeFi across infrastructure, protocol, and application layers?
• RQ3 What research gaps exist between current DeFi realizations and ideal states, and what directions are proposed to address them?

Key findings

• DeFi research literature has grown, with peak activity around 2022–2023, focusing heavily on tools and blockchain-tied infrastructure.
• A three-tier DeFi classification framework (tool level, basic functionality level, service level) organizes digital assets, wallets, oracles, asset bridges, stablecoins, lending, exchanges, and derivatives.
• Security risks are analyzed across infrastructural, protocol, and application layers, including network, consensus, MEV, and front-running challenges, with mitigation discussions.
• There is a lack of macro empirical studies in DeFi, and empirical work is often case-based due to data privacy and rapidly evolving innovations.
• Algorithmic stablecoins and derivatives receive significant attention, but definitions and consensus on stablecoin taxonomy remain unsettled.