DeFi lending

returns, leverage, and liquidation risk$hJonathan Chiu, Furkan Danisman

We study decentralized lending on Aave V3, the largest DeFi lending protocol by total value locked. Using transaction-level data, we analyze its revenue model, borrower behavior, and liquidation dynamics. We find that protocol earnings are concentrated in a few tokens, that many users engage in recursive leverage despite overcollateralization requirements, and that liquidations occur in concentrated waves but have limited impacts on broader markets. Overall, DeFi lending with proper governance is operationally viable, but it also faces constraints related to capital efficiency, liquidation risk, and systemic fragility within the crypto ecosystem.

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Year of publication:	[2026] ; Last updated: April 2, 2026
Authors:	Chiu, Jonathan ; Danisman, Furkan
Publisher:	[Ottawa] : Bank of Canada
Subject:	Blockchains \| Decentralized Finance \| Liquidation \| Smart Contracts \| Blockchain \| Kreditgeschäft \| Bank lending \| Finanztechnologie \| Financial technology \| Virtuelle Währung \| Virtual currency \| Theorie \| Theory \| Dezentralisierung \| Decentralization \| Unternehmensfinanzierung \| Corporate finance

Extent:	1 Online-Ressource (circa 32 Seiten) Illustrationen
Series:	Staff analytical paper. - Ottawa : Bank of Canada, ISSN 3110-9195, ZDB-ID 3237177-9. - Vol. 2026, 13
Type of publication:	Book / Working Paper
Type of publication (narrower categories):	Graue Literatur ; Non-commercial literature ; Arbeitspapier ; Working Paper
Language:	English
Other identifiers:	10.34989/sap-2026-13 [DOI]
Classification:	E50 - Monetary Policy, Central Banking and the Supply of Money and Credit. General ; E58 - Central Banks and Their Policies
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10015638855