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Abstract
As a digital value-management tool, the blockchain is often considered to be the financial infrastructure for the digital economy. Unsurprisingly, lending and borrowing markets have emerged within this ecosystem. Initially, centralized services led by trading platforms dominated the market, followed by decentralized solutions that use the blockchain's ability to execute code. The authors share findings from their research, which explored how incentive programs offered by lending protocols to attract users are impacting the deposits and loans. Among their key findings: While 'liquidity mining' programs effectively draw activity to their platforms, a considerable fraction of that activity is 'phantom'-created by users that are exploiting rewards from both sides of the market.
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Abstract
As a digital value-management tool, the blockchain is often considered to be the financial infrastructure for the digital economy. Unsurprisingly, lending and borrowing markets have emerged within this ecosystem. Initially, centralized services led by trading platforms dominated the market, followed by decentralized solutions that use the blockchain's ability to execute code. The authors share findings from their research, which explored how incentive programs offered by lending protocols to attract users are impacting the deposits and loans. Among their key findings: While 'liquidity mining' programs effectively draw activity to their platforms, a considerable fraction of that activity is 'phantom'-created by users that are exploiting rewards from both sides of the market.