SoK: Decentralized Finance (DeFi)

TL;DR

This paper systematically analyzes the rapidly growing DeFi ecosystem, focusing on its primitives, protocols, security aspects, and open research challenges, integrating insights from computer science, economics, and finance.

Contribution

It provides a comprehensive framework for understanding DeFi's primitives, protocol types, and security issues, especially highlighting the largely unexplored economic security dimension.

Findings

DeFi ecosystem has grown from $700m to $150bn in two years.

Distinction between technical and economic security in DeFi.

Identification of open research challenges in DeFi security.

Abstract

Decentralized Finance (DeFi), a blockchain powered peer-to-peer financial system, is mushrooming. Two years ago the total value locked in DeFi systems was approximately 700m USD, now, as of April 2022, it stands at around 150bn USD. The frenetic evolution of the ecosystem has created challenges in understanding the basic principles of these systems and their security risks. In this Systematization of Knowledge (SoK) we delineate the DeFi ecosystem along the following axes: its primitives, its operational protocol types and its security. We provide a distinction between technical security, which has a healthy literature, and economic security, which is largely unexplored, connecting the latter with new models and thereby synthesizing insights from computer science, economics and finance. Finally, we outline the open research challenges in the ecosystem across these security types.