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 show conceal doubtless ways to optimize DeFi lending platforms, or presumably the practical limits of decentralization.
The authors of the paper, titled “On the Fragility of DeFi Lending” and launched Feb. 22, acknowledge the inclusiveness DeFi offers and the advantages of neat contract protocols over the use of human discretion — but they moreover title the systemic weaknesses of DeFi. Data asymmetry, a key advise for regulators, is highlighted, with the twist that in DeFi, the asymmetry favors the borrower:
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