Decentralized Finance (DeFi). A financial revolution?

Table of Contents

1 Introduction

1.1 Research problem

1.2 Research methodology

1.3 Course of investigation

2 Theoretical foundations

2.1 Traditional finance

2.2 Decentralized Finance (DeFi)

2.2.1 Definition

2.2.2 Foundation

2.2.2.1 Blockchain technology

2.2.2.2 Smart contracts

3 Method

3.1 Systematic literature review

3.2 Research strategy

3.2.1 Sources of data

3.2.2 Inclusion and exclusion criteria

3.2.3 Search terms and filters

3.3 Literature search results

3.4 Review of results

3.4.1 Abstract review

3.4.2 Full text review

4 Analysis and discussion

4.1 Stablecoins

4.2 Decentralized Applications (DApps)

4.2.1 Overview

4.2.2 Decentralized Exchanges (DEX)

4.2.3 Savings and loans

4.2.4 Payment service providers

4.2.5 Benefits

4.3 Elimination of risks

4.3.1 Smart contract risks

4.3.2 Scalability risks

4.3.3 Oracle risks

4.3.4 Governance risks

4.4 Regulation

5 Conclusion

5.1 Summary

5.2 Critical acclaim

5.3 Outlook

Research Objectives and Themes

The primary objective of this bachelor thesis is to evaluate the transformative potential of Decentralized Finance (DeFi) in revolutionizing the traditional financial system. It explores how DeFi leverages blockchain technology and smart contracts to disintermediate financial services, while specifically analyzing the current risks and regulatory challenges that must be addressed for it to become a viable, mainstream alternative to centralized institutions.

• Examination of the fundamental differences between traditional finance and DeFi.
• Analysis of core DeFi components, specifically stablecoins and Decentralized Applications (DApps).
• Investigation of critical systemic risks, including smart contract, scalability, oracle, and governance risks.
• Evaluation of necessary regulatory frameworks to foster innovation while ensuring consumer protection.

Excerpt from the Thesis

Summary of Chapters

1 Introduction: Introduces the growing importance of DeFi and outlines the systematic literature review methodology used to answer the research question.

2 Theoretical foundations: Provides a comprehensive overview of traditional centralized financial systems and explains the core technologies (blockchain and smart contracts) underpinning DeFi.

3 Method: Describes the systematic literature review (SLR) process, including the research strategy, data sources, and the development of inclusion and exclusion criteria for source selection.

4 Analysis and discussion: Examines specific applications such as stablecoins and DApps, while providing a detailed analysis of systemic risks (smart contract, scalability, oracle, governance) and the urgent need for regulatory frameworks.

5 Conclusion: Summarizes the thesis findings, stating that while DeFi has significant transformative potential, it must overcome specific technical and regulatory hurdles to compete effectively with traditional finance.

Keywords

Decentralized finance, DeFi, smart contracts, blockchain, crypto, stablecoins, decentralized applications, risk elimination, financial regulation, scalability, governance, DApps, DEX, disintermediation, regulatory framework

Frequently Asked Questions

What is the core focus of this bachelor thesis?

This thesis examines the potential of Decentralized Finance (DeFi) to transform or revolutionize the traditional financial system by replacing centralized intermediaries with decentralized, blockchain-based alternatives.

Which specific thematic areas does the work cover?

The work covers the fundamental architecture of DeFi (blockchain and smart contracts), specific use cases like stablecoins and DApps (DEXs, lending, payments), and the major risks and regulatory hurdles currently facing the ecosystem.

What is the primary research goal?

The primary goal is to analyze how DeFi can effectively serve as a competitive and viable alternative to traditional financial services while evaluating the persistent limitations and risks that hinder its mainstream adoption.

What scientific methodology is utilized in this study?

The author performs a Systematic Literature Review (SLR) to gather, filter, and analyze relevant academic and industry sources to provide a neutral, evidence-based assessment of the DeFi landscape.

What issues are addressed in the main section?

The main section analyzes the benefits of DeFi applications, the systemic risks inherent in smart contracts, network scalability constraints, oracle dependency, and the challenges of creating an international regulatory framework.

Which keywords best characterize the work?

The work is best characterized by terms such as Decentralized Finance, smart contracts, blockchain technology, regulatory frameworks, risk mitigation, and systemic financial innovation.

How does the thesis define the concept of 'Smart Contract Risk'?

Smart contract risk refers to the potential for financial loss or system failure due to coding errors, developer malpractice, or economic exploitation, exacerbated by the fact that smart contracts are stored on public, immutable code with limited human oversight or recourse.

Why is the concept of a 'Global Regulatory Framework' so important for DeFi?

Because DeFi is borderless, a fragmented regulatory approach leads to jurisdictional confusion. The thesis argues that a harmonized international framework is essential to protect non-institutional investors, fight financial crime, and provide clarity to allow for sustainable innovation.