Tokens All the Way Down: A Money View of Decentralized Finance

TL;DR

This paper analyzes the hierarchical structure of tokens in decentralized finance, revealing how base assets support multiple claims and how liquidity and yield dynamics vary across tiers and protocols.

Contribution

It constructs a comprehensive Token Graph across blockchains, decomposes yield channels, and highlights the role of liquidity fragmentation in DeFi's risk structure.

Findings

Each dollar of base assets supports $4.7 of claims by late 2025.

Liquidity channel effects are prominent in DEX pools and absent in lending pools.

Fundamental protocol yields, not token emissions, drive the tiered yield structure.

Abstract

In traditional banking, repeated deposit-and-lend cycles let a single dollar of reserves support multiple dollars of claims. Decentralized finance produces an analogous structure with tokens. Constructing a Token Graph of 10,200 tokens across 200 blockchains, this paper maps the resulting hierarchy and shows that, by late 2025, each dollar of base assets supports $4.7 of total claims. An embedded yield correction disentangles two channels that raw data conflates: a compositional channel, where lending protocols concentrate in deeper tiers and mechanically raise average yields; and a liquidity channel, where each derivation step reduces secondary-market depth and depresses yields in liquidity-sensitive pools. The liquidity channel concentrates in DEX pools and vanishes in lending pools. A yield decomposition shows that the tier gradient operates entirely through fundamental protocol yields, not incentive-token emissions; quantile regressions reveal that the structural associations concentrate in the upper tail of the yield distribution, with near-zero effects at the median. These findings reframe DeFi's "double counting" as a structural risk question and identify liquidity fragmentation as the primary mechanism associated with yield variation across the token hierarchy.