Formal Analysis of Lending Pools in Decentralized Finance

Massimo Bartoletti; James Chiang; Tommi Junttila; Alberto Lluch Lafuente; Massimiliano Mirelli; Andrea Vandin

doi:10.1007/978-3-031-19759-8_21

Formal Analysis of Lending Pools in Decentralized Finance

Massimo Bartoletti, James Chiang, Tommi Junttila, Alberto Lluch Lafuente^*, Massimiliano Mirelli, Andrea Vandin

^*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceeding › Article in proceedings › Research › peer-review

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Abstract

Decentralised Finance (DeFi) applications constitute an entire financial ecosystem deployed on blockchains. Such applications are based on complex protocols and incentive mechanisms whose financial safety is hard to determine. Besides, their adoption is rapidly growing, hence imperilling an increasingly higher amount of assets. Therefore, accurate formalisation and verification of DeFi applications is essential to assess their safety. We have developed a tool for the formal analysis of one of the most widespread DeFi applications: Lending Pools (LP). This was achieved by leveraging an existing formal model for LPs, the Maude verification environment and the MultiVeStA statistical analyser. The tool supports several analyses including reachability analysis, LTL model checking and statistical model checking. In this paper we show how the tool can be used to analyse several parameters of LPs that are fundamental to assess and predict their behaviour. In particular, we use statistical analysis to search for threshold and reward parameters that minimize the risk of unrecoverable loans.

Original language	English
Title of host publication	Leveraging Applications of Formal Methods, Verification and Validation. Adaptation and Learning.
Editors	Tiziana Margaria, Bernhard Steffen
Publisher	Springer
Publication date	2022
Pages	335-355
ISBN (Print)	9783031197581
DOIs	https://doi.org/10.1007/978-3-031-19759-8_21
Publication status	Published - 2022
Event	11th International Symposium on Leveraging Applications of Formal Methods, Verification and Validation - Alila Resort & Spa, Rhodes, Greece Duration: 22 Oct 2022 → 30 Oct 2022 Conference number: 11 https://www.isola-conference.org

Conference

Conference	11th International Symposium on Leveraging Applications of Formal Methods, Verification and Validation
Number	11
Location	Alila Resort & Spa
Country/Territory	Greece
City	Rhodes
Period	22/10/2022 → 30/10/2022
Internet address	https://www.isola-conference.org

Series	Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
Volume	13703 LNCS
ISSN	0302-9743

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Bartoletti, Massimo ; Chiang, James ; Junttila, Tommi et al. / Formal Analysis of Lending Pools in Decentralized Finance. Leveraging Applications of Formal Methods, Verification and Validation. Adaptation and Learning.. editor / Tiziana Margaria ; Bernhard Steffen. Springer, 2022. pp. 335-355 (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), Vol. 13703 LNCS).

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abstract = "Decentralised Finance (DeFi) applications constitute an entire financial ecosystem deployed on blockchains. Such applications are based on complex protocols and incentive mechanisms whose financial safety is hard to determine. Besides, their adoption is rapidly growing, hence imperilling an increasingly higher amount of assets. Therefore, accurate formalisation and verification of DeFi applications is essential to assess their safety. We have developed a tool for the formal analysis of one of the most widespread DeFi applications: Lending Pools (LP). This was achieved by leveraging an existing formal model for LPs, the Maude verification environment and the MultiVeStA statistical analyser. The tool supports several analyses including reachability analysis, LTL model checking and statistical model checking. In this paper we show how the tool can be used to analyse several parameters of LPs that are fundamental to assess and predict their behaviour. In particular, we use statistical analysis to search for threshold and reward parameters that minimize the risk of unrecoverable loans.",

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Bartoletti, M, Chiang, J, Junttila, T, Lluch Lafuente, A, Mirelli, M & Vandin, A 2022, Formal Analysis of Lending Pools in Decentralized Finance. in T Margaria & B Steffen (eds), Leveraging Applications of Formal Methods, Verification and Validation. Adaptation and Learning.. Springer, Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), vol. 13703 LNCS, pp. 335-355, 11th International Symposium on Leveraging Applications of Formal Methods, Verification and Validation, Rhodes, Greece, 22/10/2022. https://doi.org/10.1007/978-3-031-19759-8_21

Formal Analysis of Lending Pools in Decentralized Finance. / Bartoletti, Massimo; Chiang, James; Junttila, Tommi et al.
Leveraging Applications of Formal Methods, Verification and Validation. Adaptation and Learning.. ed. / Tiziana Margaria; Bernhard Steffen. Springer, 2022. p. 335-355 (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), Vol. 13703 LNCS).

Research output: Chapter in Book/Report/Conference proceeding › Article in proceedings › Research › peer-review

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AU - Bartoletti, Massimo

AU - Chiang, James

AU - Junttila, Tommi

AU - Lluch Lafuente, Alberto

AU - Mirelli, Massimiliano

AU - Vandin, Andrea

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N2 - Decentralised Finance (DeFi) applications constitute an entire financial ecosystem deployed on blockchains. Such applications are based on complex protocols and incentive mechanisms whose financial safety is hard to determine. Besides, their adoption is rapidly growing, hence imperilling an increasingly higher amount of assets. Therefore, accurate formalisation and verification of DeFi applications is essential to assess their safety. We have developed a tool for the formal analysis of one of the most widespread DeFi applications: Lending Pools (LP). This was achieved by leveraging an existing formal model for LPs, the Maude verification environment and the MultiVeStA statistical analyser. The tool supports several analyses including reachability analysis, LTL model checking and statistical model checking. In this paper we show how the tool can be used to analyse several parameters of LPs that are fundamental to assess and predict their behaviour. In particular, we use statistical analysis to search for threshold and reward parameters that minimize the risk of unrecoverable loans.

AB - Decentralised Finance (DeFi) applications constitute an entire financial ecosystem deployed on blockchains. Such applications are based on complex protocols and incentive mechanisms whose financial safety is hard to determine. Besides, their adoption is rapidly growing, hence imperilling an increasingly higher amount of assets. Therefore, accurate formalisation and verification of DeFi applications is essential to assess their safety. We have developed a tool for the formal analysis of one of the most widespread DeFi applications: Lending Pools (LP). This was achieved by leveraging an existing formal model for LPs, the Maude verification environment and the MultiVeStA statistical analyser. The tool supports several analyses including reachability analysis, LTL model checking and statistical model checking. In this paper we show how the tool can be used to analyse several parameters of LPs that are fundamental to assess and predict their behaviour. In particular, we use statistical analysis to search for threshold and reward parameters that minimize the risk of unrecoverable loans.

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SN - 9783031197581

T3 - Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)

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BT - Leveraging Applications of Formal Methods, Verification and Validation. Adaptation and Learning.

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ER -

Bartoletti M, Chiang J, Junttila T, Lluch Lafuente A, Mirelli M, Vandin A. Formal Analysis of Lending Pools in Decentralized Finance. In Margaria T, Steffen B, editors, Leveraging Applications of Formal Methods, Verification and Validation. Adaptation and Learning.. Springer. 2022. p. 335-355. (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), Vol. 13703 LNCS). doi: 10.1007/978-3-031-19759-8_21