SoK Lending Pools in Decentralized Finance

Massimo Bartoletti; James Hsin yu Chiang; Alberto Lluch Lafuente

doi:10.1007/978-3-662-63958-0_40

SoK Lending Pools in Decentralized Finance

Massimo Bartoletti, James Hsin yu Chiang^*, Alberto Lluch Lafuente

^*Corresponding author for this work

Department of Applied Mathematics and Computer Science

University of Cagliari

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

470 Downloads (Pure)

Abstract

Lending pools are decentralized applications which allow mutually untrusted users to lend and borrow crypto-assets. These applications feature complex, highly parametric incentive mechanisms to equilibrate the loan market. This complexity makes the behaviour of lending pools difficult to understand and to predict: indeed, ineffective incentives and attacks could potentially lead to emergent unwanted behaviours. Reasoning about lending pools is made even harder by the lack of executable models of their behaviour: to precisely understand how users interact with lending pools, eventually one has to inspect their implementations, where the incentive mechanisms are intertwined with low-level implementation details. Further, the variety of existing implementations makes it difficult to distill the common aspects of lending pools. We systematize the existing knowledge about lending pools, leveraging a new formal model of interactions with users, which reflects the archetypal features of mainstream implementations. This enables us to prove some general properties of lending pools, and to precisely describe vulnerabilities and attacks. We also discuss the role of lending pools in the broader context of decentralized finance and identify relevant research challenges.

Original language	English
Title of host publication	Financial Cryptography and Data Security
Editors	Matthew Bernhard, Andrea Bracciali, Lewis Gudgeon, Thomas Haines, Ariah Klages-Mundt, Shin'ichiro Matsuo, Daniel Perez, Massimiliano Sala, Sam Werner
Publisher	Springer
Publication date	2021
Pages	553-578
ISBN (Print)	9783662639573
DOIs	https://doi.org/10.1007/978-3-662-63958-0_40
Publication status	Published - 2021
Event	2^nd Workshop on Coordination of Decentralized Finance - Virtual event Duration: 5 Mar 2021 → 5 Mar 2021

Conference

Conference	2^nd Workshop on Coordination of Decentralized Finance
Location	Virtual event
Period	05/03/2021 → 05/03/2021

Series	Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)
Volume	12676 LNCS
ISSN	0302-9743

Bibliographical note

Funding Information:
Massimo Bartoletti is partially supported by Conv. Fondazione di Sardegna & Atenei Sardi project F74I19000900007 ADAM. James Hsin-yu Chiang is supported by the PhD School of DTU Compute. Alberto Lluch Lafuente is partially supported by the EU H2020-SU-ICT-03-2018 Project No. 830929 CyberSec4Europe (cybersec4europe.eu).

Funding Information:
Acknowledgements. Massimo Bartoletti is partially supported by Conv. Fondazione

Publisher Copyright:
© 2021, International Financial Cryptography Association.

Access to Document

10.1007/978-3-662-63958-0_40

FulltextAccepted author manuscript, 522 KB

OpenUrl availability

Full text

Cite this

Bartoletti, Massimo ; Chiang, James Hsin yu ; Lafuente, Alberto Lluch. / SoK Lending Pools in Decentralized Finance. Financial Cryptography and Data Security. editor / Matthew Bernhard ; Andrea Bracciali ; Lewis Gudgeon ; Thomas Haines ; Ariah Klages-Mundt ; Shin'ichiro Matsuo ; Daniel Perez ; Massimiliano Sala ; Sam Werner. Springer, 2021. pp. 553-578 (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), Vol. 12676 LNCS).

@inproceedings{c6efa16338974b50aa1922f52cc6deee,

title = "SoK Lending Pools in Decentralized Finance",

abstract = "Lending pools are decentralized applications which allow mutually untrusted users to lend and borrow crypto-assets. These applications feature complex, highly parametric incentive mechanisms to equilibrate the loan market. This complexity makes the behaviour of lending pools difficult to understand and to predict: indeed, ineffective incentives and attacks could potentially lead to emergent unwanted behaviours. Reasoning about lending pools is made even harder by the lack of executable models of their behaviour: to precisely understand how users interact with lending pools, eventually one has to inspect their implementations, where the incentive mechanisms are intertwined with low-level implementation details. Further, the variety of existing implementations makes it difficult to distill the common aspects of lending pools. We systematize the existing knowledge about lending pools, leveraging a new formal model of interactions with users, which reflects the archetypal features of mainstream implementations. This enables us to prove some general properties of lending pools, and to precisely describe vulnerabilities and attacks. We also discuss the role of lending pools in the broader context of decentralized finance and identify relevant research challenges.",

author = "Massimo Bartoletti and Chiang, {James Hsin yu} and Lafuente, {Alberto Lluch}",

note = "Funding Information: Massimo Bartoletti is partially supported by Conv. Fondazione di Sardegna & Atenei Sardi project F74I19000900007 ADAM. James Hsin-yu Chiang is supported by the PhD School of DTU Compute. Alberto Lluch Lafuente is partially supported by the EU H2020-SU-ICT-03-2018 Project No. 830929 CyberSec4Europe (cybersec4europe.eu). Funding Information: Acknowledgements. Massimo Bartoletti is partially supported by Conv. Fondazione Publisher Copyright: {\textcopyright} 2021, International Financial Cryptography Association.; 2<sup>nd</sup> Workshop on Coordination of Decentralized Finance, CoDecFin 2021 ; Conference date: 05-03-2021 Through 05-03-2021",

year = "2021",

doi = "10.1007/978-3-662-63958-0_40",

language = "English",

isbn = "9783662639573",

series = "Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics)",

publisher = "Springer",

pages = "553--578",

editor = "Matthew Bernhard and Andrea Bracciali and Lewis Gudgeon and Thomas Haines and Ariah Klages-Mundt and Shin'ichiro Matsuo and Daniel Perez and Massimiliano Sala and Sam Werner",

booktitle = "Financial Cryptography and Data Security",

}

Bartoletti, M, Chiang, JHY & Lafuente, AL 2021, SoK Lending Pools in Decentralized Finance. in M Bernhard, A Bracciali, L Gudgeon, T Haines, A Klages-Mundt, S Matsuo, D Perez, M Sala & S Werner (eds), Financial Cryptography and Data Security. Springer, Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), vol. 12676 LNCS, pp. 553-578, 2^nd Workshop on Coordination of Decentralized Finance, 05/03/2021. https://doi.org/10.1007/978-3-662-63958-0_40

SoK Lending Pools in Decentralized Finance. / Bartoletti, Massimo; Chiang, James Hsin yu; Lafuente, Alberto Lluch.
Financial Cryptography and Data Security. ed. / Matthew Bernhard; Andrea Bracciali; Lewis Gudgeon; Thomas Haines; Ariah Klages-Mundt; Shin'ichiro Matsuo; Daniel Perez; Massimiliano Sala; Sam Werner. Springer, 2021. p. 553-578 (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), Vol. 12676 LNCS).

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

TY - GEN

T1 - SoK Lending Pools in Decentralized Finance

AU - Bartoletti, Massimo

AU - Chiang, James Hsin yu

AU - Lafuente, Alberto Lluch

N1 - Funding Information: Massimo Bartoletti is partially supported by Conv. Fondazione di Sardegna & Atenei Sardi project F74I19000900007 ADAM. James Hsin-yu Chiang is supported by the PhD School of DTU Compute. Alberto Lluch Lafuente is partially supported by the EU H2020-SU-ICT-03-2018 Project No. 830929 CyberSec4Europe (cybersec4europe.eu). Funding Information: Acknowledgements. Massimo Bartoletti is partially supported by Conv. Fondazione Publisher Copyright: © 2021, International Financial Cryptography Association.

PY - 2021

Y1 - 2021

N2 - Lending pools are decentralized applications which allow mutually untrusted users to lend and borrow crypto-assets. These applications feature complex, highly parametric incentive mechanisms to equilibrate the loan market. This complexity makes the behaviour of lending pools difficult to understand and to predict: indeed, ineffective incentives and attacks could potentially lead to emergent unwanted behaviours. Reasoning about lending pools is made even harder by the lack of executable models of their behaviour: to precisely understand how users interact with lending pools, eventually one has to inspect their implementations, where the incentive mechanisms are intertwined with low-level implementation details. Further, the variety of existing implementations makes it difficult to distill the common aspects of lending pools. We systematize the existing knowledge about lending pools, leveraging a new formal model of interactions with users, which reflects the archetypal features of mainstream implementations. This enables us to prove some general properties of lending pools, and to precisely describe vulnerabilities and attacks. We also discuss the role of lending pools in the broader context of decentralized finance and identify relevant research challenges.

AB - Lending pools are decentralized applications which allow mutually untrusted users to lend and borrow crypto-assets. These applications feature complex, highly parametric incentive mechanisms to equilibrate the loan market. This complexity makes the behaviour of lending pools difficult to understand and to predict: indeed, ineffective incentives and attacks could potentially lead to emergent unwanted behaviours. Reasoning about lending pools is made even harder by the lack of executable models of their behaviour: to precisely understand how users interact with lending pools, eventually one has to inspect their implementations, where the incentive mechanisms are intertwined with low-level implementation details. Further, the variety of existing implementations makes it difficult to distill the common aspects of lending pools. We systematize the existing knowledge about lending pools, leveraging a new formal model of interactions with users, which reflects the archetypal features of mainstream implementations. This enables us to prove some general properties of lending pools, and to precisely describe vulnerabilities and attacks. We also discuss the role of lending pools in the broader context of decentralized finance and identify relevant research challenges.

U2 - 10.1007/978-3-662-63958-0_40

DO - 10.1007/978-3-662-63958-0_40

M3 - Article in proceedings

AN - SCOPUS:85115868883

SN - 9783662639573

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

SP - 553

EP - 578

BT - Financial Cryptography and Data Security

A2 - Bernhard, Matthew

A2 - Bracciali, Andrea

A2 - Gudgeon, Lewis

A2 - Haines, Thomas

A2 - Klages-Mundt, Ariah

A2 - Matsuo, Shin'ichiro

A2 - Perez, Daniel

A2 - Sala, Massimiliano

A2 - Werner, Sam

PB - Springer

T2 - 2<sup>nd</sup> Workshop on Coordination of Decentralized Finance

Y2 - 5 March 2021 through 5 March 2021

ER -

Bartoletti M, Chiang JHY, Lafuente AL. SoK Lending Pools in Decentralized Finance. In Bernhard M, Bracciali A, Gudgeon L, Haines T, Klages-Mundt A, Matsuo S, Perez D, Sala M, Werner S, editors, Financial Cryptography and Data Security. Springer. 2021. p. 553-578. (Lecture Notes in Computer Science (including subseries Lecture Notes in Artificial Intelligence and Lecture Notes in Bioinformatics), Vol. 12676 LNCS). doi: 10.1007/978-3-662-63958-0_40

SoK Lending Pools in Decentralized Finance

Abstract

Conference

Bibliographical note

Access to Document

OpenUrl availability

Fingerprint

Cite this