Introduction to Decentralised Finance

What is Decentralised Finance (DeFi)

  • Loans
  • decentralised Exchanges (DEXes)
  • Derivatives
  • Payments
  • Assets

Loans

Flashloans

Decentralised Exchanges

Derivatives

Payments

Assets

Loans

Arbitrage using flashloans

Arbitrage Strategies

Arbitrage Sequence

Basic Requirements and considerations

  • The arbitrage opportunity has to actually be there, for the flash loan arbitrage to be profitable.
  • Gas fees, which depend on the complexity of the flash loan contract, the number of contract calls, etc.
  • Flash loan fees which are decided by the flash loan provider
  • You will need to transact with multiple decentralized exchanges for exchange arbitrage
  • There could also be opportunities for arbitrage across multiple trading pairs

Yield Farming

What is the return on investment?

  • Transaction fee income
  • Token rewards
  • Capital growth

Transaction fee income

Token rewards

Capital growth

What to Consider Before Yield Farming

Misleading APY

Price volatility

DeFi Risks

  • Smart contract risks
  • Oracle risks
  • Exchange rate risks
  • Black swan events
  • Jun 2019: Synthetix sETH $37m
  • Feb 2020: bZx $900k
  • Mar 2020: iEarn $280k
  • Mar 2020: MakerDAO Black Thursday $9M
  • Apr 2020: LendfMe $25m
  • Apr 2020: imBTC Uniswap Pool $300k
  • Jun 2020: Balancer $500k ETH
  • Jul 2020: Liquid $16m BTC (avoided)

Smart contract risks

Oracle risk

Synthetix Hack

bZx second hack

Exchange rate and liquidation risk

Black swan events

Summary

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Extropy.IO

Extropy.IO

Oxford-based blockchain and zero knowledge consultancy and auditing firm