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Tag: Finance

Contagion in Decentralized Lending Protocols: A Case Study of Compound

We study financial contagion in Compound V2, a decentralized lending protocol deployed on the Ethereum blockchain. We explain how to construct the balance sheets of Compound’s liquidity pools and use our methodology to characterize the financial network. Our analysis reveals that most users either borrow stablecoins or engage in liquidity mining. We then study the robustness of Compound through a series of stress tests, identifying the pools that are most likely to set off a cascade of defaults.

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2023-12-05
Publications

The Economics of Constant Function Market Makers

We use microeconomic theory to describe the inner workings of Constant Function Market Makers (CFMMs). We show that standard results from consumer theory apply in this new context, endowing us with powerful tools to characterize the optimal design of CFMMs. We employ them to analyze the externalities that traders and liquidity providers exert on each other when interacting through a CFMM. Liquidity providers reduce the execution costs by flattening the bonding curve on which trades are executed. Arbitrageurs impose an adverse selection cost on liquidity providers by unfavorably rebalancing their portfolio. We show that the strengths of these two externalities are pinned down by the curvature of the bonding curve and are inversely related to each other, thereby identifying the fundamental economic tradeoff that market designers have to address.

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2023-04-05
Publications

SoK: Constant Function Market Makers

We provide an overview of the academic literature on Automated Market Makers for Decentralized Exchanges. Our review puts an emphasis on contributions from researchers in economics and finance. We cover papers that study the optimal design of Automated Market Makers. Then we discuss models that leverage the insights from the literature on two-sided markets to characterize the equilibrium size of liquidity pools and the incentives of liquidity providers. Finally, we review recent research on the interactions between Miner Extractible Value and Decentralized Exchanges.

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2023-04-05
Past Events

BlockSem: PCP and Ethereum PoS

The BlockSem seminar brings together academic and private researchers working on blockchain technologies. The seminar is multidisciplinary, hosting presenters from computer science, economics and finance.

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2023-01-12
Past Events

Anti-fraud & crypto hackathon

Hackathon organisé par la direction générale des Finances publiques (DGFiP), le Département d’Economie de l’Ecole Polytechnique, l’ENSAE et La Chaire Blockchain@Polytechnique sur le thème de la lutte contre la fraude fiscale sur les activités crypto.

Les 1er et 2 décembre…

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2022-12-01
Outlooks

A Hitchhiker’s Guide to Decentralized Finance

Decentralized Finance is a major innovation trend that is shaking the FinTech world. DeFi refers to a universe of financial applications that rely on blockchain technology to achieve decentralization. In other words, DeFi applications allow their users to perform traditional financial operations…

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2022-11-20
Outlooks

Blockchains & Sustainable Development

This report is a continuation of the work of the Blockchain for Good association, including the publication of a first report released in June 2020. Both attempt to answer the question of whether and how blockchains could help accelerate the achievement of the Sustainable Development Goals in a significant and sustainable way.

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2022-11-18
Insights

Back to the First Edition of the Future.s of Money in Paris

On June 16 and 17 2022, the blockchain@X chair at Ecole Polytechnique organized a unique event in Paris: The Future.s of Money. Many experts and actors from the economic, financial, digital and research worlds gathered around conferences dealing with the future and the digitalisation of money, now accessible to all.

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2022-07-01