VIETNAM NATIONAL UNIVERSITY UNIVERSITY OF ECONOMICS AND BUSINESS GRADUATION THESIS 2023 DEFI LENDING: CURRENT STATUS AND DEVELOPMENT TRENDS Student Hoang Yen Ngoc Student’s ID 19050706 Class TCNH QH2019E CLC 1 Ha Noi — 2023 VIETNAM NATIONAL UNIVERSITY UNIVERSITY OF ECONOMICS AND BUSINESS GRADUATION THESIS 2023 DEFI LENDING: CURRENT STATUS AND DEVELOPMENT TRENDS Student’s ID : 19050706 Class : TCNH QH2019E CLC 1 Instructor : MSc. Giang Thi Minh Thao Ha Noi — 2023 DECLARATION OF AUTHORSHIP I declare that my graduation thesis "DeFi Lending: Current Status and Development Trends" is an independent research work. The citations, data, and references used in the thesis are clear, honest, and transparent. Hanoi, May 2023 Student Hoang Yén Ngoc ACKNOWLEDGMENT Completing my thesis, with all due respect and gratitude, I would like to express my sincere thanks to the Board of Directors of the University of Economics - National University of Hanoi and the Faculty of Finance and Banking for organizing a very useful thesis for us students.
I would like to express my deep gratitude to the lecturers of the Faculty of Finance and Banking who have taken their time and enthusiasm to support, answer questions for us students and teach us valuable knowledge so that I can be more confident in my research. I also sincerely thank Ms. Giang Thi Minh Thao - Lecturer of the Faculty of Finance and Banking who has cared, guided, instructed, and encouraged me during the thesis writing process. Due to my limited theoretical level and practical experience, my thesis still has many shortcomings.
I hope to receive constructive feedback from my esteemed teachers and fellow students so that I can learn more experience and do better in my thesis. I would like to send my best wishes to all teachers and wish them good health and enthusiasm to continue their noble mission of imparting knowledge to future generations. Hanoi, May 2023 Student Instructor Hoang Yén Ngoc Giang Thi Minh Thao TABLE OF CONTENTS DECLARATION OF AƯTHOR.-- SE ssseeseeserrerske 1 ACKNOWLEDGMEÌNTT.-- Gà 1n nhu TH HT ngưng tệp 2 LIST OF ACRONYMS. SH TH HH TH HT ng gà 7 LIST OF TABLES, FIGURES.
- c1 k* vn ng gnưệp 8 CHAPTER 1: INTRODUCTIONN. The urgency of the SuJ€CCE. Objectives Of r€S€aTCH.- d5 s11 nh TH ng nh 10 E4). The research methOd.- -- -- 5< + + + +2 1£ +21 EE+*2EE+ExEE+EeEEkreereseerrreerree 11 5.
The subject of research. The subject of r€S€aTCH.- ----- < 3311132 19 11 9 1 vn ng nền 11 5. Outline of the r€s€aTCHh.- <5 c6 E1 1E vn ng ng nrưệt 12 CHAPTER 2: LITERATURE REVIEW. Traditional centralized lending, characteristics and disadvantages.
Definition Of De El.- -- -s- s+xk*v nnH nhnnnghnnưệt 14 2. Operation Of DeF1 .- --- + + xxx vn ng ng ng 15 2. The growth Of [De EI. - «<6 + 3 1E E9 vn ng ng ng ng 15 2.
Characteristics Of IDDeEl.-- - - << << xxx xxx vvvkEEEkerrerree 17 2. Similarities of DeFi and Centralized Finance (CeFI). Difference between CeFi and DeEl. The applications of DeiEH.
- «+ s1 nh ng ng 22 2. Definition of DeFi Lending. Operation of DeFi lending. The growth of DeFi Lending.
Characteristics of DeFi Lending .- -- «+ «++sx++sx++ex++ 24 2. Forms of DeFi lending. Situation of DeFi lendIng. Risks of DeFi lending.
Development trend of DeFi lending. Pr€VIOUS S{UCIGS. G11 nh HH re 30 2. Resolved issues of DeFi lending.
Unresolved issues of DeFi lending .-- - -- Gà HH HH HH ng 32 CHAPTER 3: RESEARCH METHODS. Data description and Data SOUTC€S. óc n1 1v ng nh ng ng 33 3.- Ác HT tr 34 CHAPTER 4: RESEARCH RESUL/TTS. Status of DeFi Lending.
- -- «+ xxx ng rrkp 35 4. Current status of DeFi Lending Market. Risks of DeFi Lending. Aave Lending DÏ4fÍOTTT.
Overview of Aave lending aCfIVI{I€S. Analysis of the scale and growth of Aave lending. Examination of Aave's lending terms, interest rates, and collateral TOQUITEMENIUS 08. Analysis of the types of borrowers and purposes of borrowing on An.
Maple finance (MPL) lending platÍorm. Overview of Maple finance lending actIVItI€S. Analysis of the scale and growth of MPL. Examination of Maple’s lending terms, interest rates, and Collateral requireMentt 0.
Analysis of the types of borrowers and purposes of borrowing on 510 1. Current development trends of DeFi lending. Future trends of DeFi lending. -- -- -- + + + +++*++sekxsseeesseeeese 59 CHAPTER 5: CONCLUTION.
Contribution Of tÏH€SIS.- -- s6 11318811 91 E911 9v vn ng ng re 62 5. Limitations of the research {OpIC. Development direction of the †ODIC. - - - << << «<< E EEEEEEEEEEEEEE ke eeeeerzez REFERENCES LIST OF ACRONYMS Acronyms Means DeFi Decentralized Finance CeFi Centralized Finance DeFi Lending Decentralized Lending TVL Total value locked MPL Maple Finance DEXs Decentralized Exchanges SMEs Small and Medium-sized Enterprises LIST OF TABLES, FIGURES Figure 4.5 | Chart of impermanent loss when the price of assets locked in the liquidity pool changes after being deposited.
The urgency of the subject The era of 4.0 has witnessed significant advancements in engineering science, coinciding with the burgeoning trend of decentralized finance (DeFi), which has gained substantial momentum in recent years, particularly since 2020. The concept of decentralized finance can be traced back to the emergence of Bitcoin in 2009. Decentralized financial applications have been developed to facilitate the unrestricted utilization, management, and circulation of assets, while reducing the reliance on financial intermediaries. The successful development and expansion of DeFi has the potential to facilitate the creation of a more efficient financial system and foster greater inclusivity in finance.
In recent times, advancements in blockchain technology have facilitated a novel decentralized model that obviates intermediaries (i. DeFi is known to aid in the elimination of censorship regulations, providing customers with expedited access to financial services. The implementation of this measure would facilitate a financial system that is more inclusive and less prone to instances of censorship and discrimination on a global scale. DeFi is perceived by major institutions and banks globally as a market with significant growth potential in conjunction with conventional finance.
However, it also poses several risks. Currently, DeFi has integrated into the worldwide financial system, enabling the provision of financial services to individuals irrespective of their geographic location. DeFi has the potential to expand further in the future and offer diverse financial services, including but not limited to lending, insurance, and asset trading. The protocols' decentralization and transparency enable users to avail financial services that were previously inaccessible to them.
Furthermore, DeFi constructed on the blockchain infrastructure enhances security measures and mitigates the potential for fraudulent activities. The implementation of this measure has the potential to foster a more secure and accountable financial climate for all stakeholders involved. 10 The trend towards DeFi is becoming increasingly prevalent in the realm of digital technology, with decentralized lending (DeFi lending) activities gaining significant traction. As of March 10, 2023, the total supply of liquidity in this area amounted to $44.71 billion, with a peak of $175 billion having been reached on November 13, 2021.
This presents a potential for a financial system that is more inclusive and easily accessible to a diverse group of users. Notwithstanding the novelty of the subject matter, Vietnamese scholars remain constrained in their understanding of DeFi. Consequently, the proposed research initiative will serve as a valuable resource for a diverse range of stakeholders, including users, researchers, policymakers, and financial institutions, who require a comprehensive grasp of DeFi in order to effectively manage or integrate it into their existing operations. The author opted to choose the topic "DeFi Lending: Current Status and Development Trends" for their thesis, drawing from both theoretical and practical foundations, as well as forecasting development trends.
Objectives of research. The research paper aimed at evaluating the actual state of the DeFi market in general and focused on DeFi lending in particular in order to give recommendations to improve the effectiveness of the platform in the future not only in the world but also in Vietnam. The detailed objectives of this research are as followed: First, this research evaluates the current status of DeFi and DeFi Lending worldwide, as well as points out the risks that participants on this platform system may encounter. Second, the author examines the potential of DeFi lending to solve global financial problems, including economic development, reducing financial inequality, increasing access to finance disadvantaged groups, and promote the development of the digital economy.
11 Third, the paper outlines the future development trends of the DeFi Lending market and therefore makes proposals to improve existing and promote what has been achieved. The research question. This thesis aims to tackle three research questions as followed: What are the latest developments in DeFi lending and their impact on financial markets and users? What are the developments and risks that users can face in the current decentralized loan market? What are the future trends of DeFi lending? 4. The research method.
To the research objectives, the author uses a combination of several methods including: Analysis — synthesis: The purpose of analyzing the situation and risks in DeFi lending is to make appropriate proposals. Secondary data collection: materials collected from reports, scientific journals, official websites like DeFi Pulse, DeFi Llama, Messari. and other existing research documents on Google Scholar, Sciene Direct and Research Gate. The subject of research.
The subject of research. The research will focus its analysis on DeFi and DeFi lending in general. Then two important DeFi lending platforms, namely Aave and Maple Finance, will be examined further. Area of research.
Space: DeFi in general and DeFi lending for more detailed analysis. 12 Time: From 2020 until now, which is also the time when the DeFi market has begun to prosper. Research gaps The extant literature has addressed DeFi and DeFi lending in various research works and articles. Nonetheless, there exists a paucity of comprehensive investigation on the state and trend of DeFi and DeFi lending both globally and within Vietnam.
This research focus on elucidating the DeFi lending operations. For Vietnam, DeFi could be considered as a potential form of finance with benefits and risks in the near future. Therefore, this research can be valuable for a variety of interested parties, such as users, researchers, policymakers, and financial institutions, who need to have a complete understanding of DeFi to manage or incorporate it efficiently into their current practices. Attention should also be paid to mitigate risks associated with DeFi lending activities, which will also be discussed in this research.
Outline of the research This thesis is organized in five chapters as followed: Chapter 1: Introduction Chapter 2: Literature Review Chapter 3: Research Methods Chapter 4: Research Results Chapter 5: Conclusion 13 CHAPTER 2: LITERATURE REVIEW 2. Traditional centralized lending, characteristics and disadvantages Traditional centralized lending, also known as traditional lending, is a form of financial lending made by traditional financial institutions such as banks, financial companies or other credit institutions. In this form, these financial institutions will receive loans from borrowers and use this capital to lend money to others, usually businesses or individuals. Traditionally, traditional lending requires loans to be secured by valuable assets such as houses, cars, or deposits.
Lending activity involves lending money, collecting interest, and receiving repayment. This activity first occurred in Mesopotamia around 5,000 years ago (Freas 2018). Since then, the lending market has developed in many different forms, including consumer loans, student loans, mortgages, corporate debt, and government bonds. The scale of the global debt market as of 2022 is estimated to be over $260 trillion, contributing to economic growth.
Lending activities have now become one of the most important financial activities in society. It drives economic growth and nurtures forward-looking commercial activities. The scale of the global debt market as of 2019 was estimated to be over 255 trillion US dollars or nearly 32,500 dollars per person among the 7.