DeFi ‘fragility’ causes and cures explored in extremely technical Financial institution of Canada research

The Financial institution of Canada has launched a working paper that examines lending protocols in decentralized finance with regard to sources of instability and their relation to crypto asset costs. Its findings level to potential methods to optimize DeFi lending platforms, or probably the sensible limits of decentralization.

The authors of the paper, titled “On the Fragility of DeFi Lending” and launched Feb. 22, acknowledge the inclusiveness DeFi provides and some great benefits of good contract protocols over the usage of human discretion — however in addition they establish the systemic weaknesses of DeFi. Info asymmetry, a key difficulty for regulators, is highlighted, with the twist that in DeFi, the asymmetry favors the borrower:

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