How does decentralized finance differ from the traditional banking system in terms of financial intermediation?
Details
- Supervisors
- Faculty
- Degree label
- Abstract
- The research conducted in this dissertation aims to observe, analyze, and understand how decentralized finance differs from traditional finance in terms of financial intermediation. While banks have long played, and still play today, an essential role in our society and in economic development by collecting deposits, granting credit, producing information on borrowers, transforming liquidity, and managing risks, blockchain technology, of which decentralized finance is one of the main financial applications, proposes another form of organization. This organization relies in particular on tools such as smart contracts, liquidity pools, and automated mechanisms. The objective of this work is to show how certain forms of financial intermediation are reconfigured by decentralized finance, without seeking to develop a binary analysis based on the presence or absence of financial intermediation in this model. This work begins by proposing a theoretical comparative analysis between the traditional banking model and decentralized finance, by observing the differences in functioning in the performance of major intermediation functions, such as fund allocation, information management, borrower selection, governance, trust, and risk management. The second part develops a comparative empirical analysis that seeks to observe, from a practical perspective, whether and how the concepts addressed in the literature review are reflected in real-world data. This analysis uses data from the Aave protocol, mainly for the USDT, USDC, and EURC stablecoins on Ethereum, as well as European banking data from the European Central Bank. The observed results suggest that decentralized finance reproduces certain intermediation functions, such as connecting liquidity providers and borrowers, but by relying on a fundamentally different logic and processes. The data indicate more volatile rates that are more directly dependent on market conditions. The way deposited funds are transformed into credit also differs from that of the traditional banking system, and risk is mainly managed upstream through overcollateralization and automatic liquidation mechanisms. By contrast, banks retain an important advantage in information production, the financing of opaque agents, and large- scale liquidity transformation. Based on the information collected throughout this work, this dissertation concludes that decentralized finance does not eliminate financial intermediation, but rather changes its form. Intermediation shifts from an institutional, relational, and regulated model to a more automated, standardized, protocol-based model that depends on various mechanisms, notably collateral.