DeFi and Digital Assets
Week 7 | Frontiers of the Digital Economy |
ECON1574
CRICOS provider number: 00122A | RTO Code: 3046
Today: DeFi
principles +
practical lab
What is DeFi (and what it is not)
Which markets are being created (DEX,
lending, stablecoins, derivatives)
How DeFi addresses key problems in
traditional finance (Harvey)
Week 1 lens: digital costs + new risks
Hands-on: Etherscan + DeFiLlama + protocol
exploration
Key resources
DeFi Beyond the Hype
(Wharton Blockchain &
Digital Asset Project x
WEF, 2021) — pp. 1–5
Harvey, Ramachandran &
Santoro (2021) — Chapter
5: Problems DeFi solves
WEF (2025): What is DeFi
and what can it do in
practice?
What is
finance?
Services: lending,
borrowing, trading, saving,
insuring
Trust model: intermediaries
(banks, brokers,
exchanges, regulators)
Information asymmetry:
customers rely on
institutions to
manage/price risk
Outcome: stable, but
sometimes inefficient,
expensive, and
exclusionary
Five problems in traditional finance (Harvey)
• Centralized control: money supply and access controlled by
large institutions
• Limited access: unbanked/underbanked; SMEs excluded from
affordable finance
• Inefficiency: high fees, slow settlement, opaque pricing
• Lack of interoperability: siloed products and systems
• Opacity: users can’t see how intermediaries operate or price
services
What is DeFi? (authoritative definitions)
Wharton x WEF (2021):
DeFi uses dApps to deliver financial services on a blockchain settlement
layer, reducing reliance on centralized intermediaries and enabling
composability.
WEF (2025):
digitally native system of record; peer-to-peer operation/settlement;
programmable, open, composable architecture; option for self-hosted
custody.
Key characteristics: programmable protocols, transparent on-chain
settlement, open access (with technical barriers).
DeFi is NOT… (common confusions)
• “Any finance on a blockchain” (many systems are tokenized
but still intermediated)
• A guarantee of anonymity (addresses are often linkable)
• Risk-free ‘yield’ (returns usually compensate risk)
DeFi building blocks (tech + institutions)
Trust shifts to code + data + governance
What markets exist in DeFi? (service categories)
Plumbing: wallets, bridges, oracles, aggregators, analytics (e.g.,
DeFiLlama)
Harvey et al.: DeFi
primitives and the
problems they target
These primitives are the
“menu” for your DeFi
treasure hunt teams.
Trust model: different institutional arrangements
Traditional finance
DeFi
Trust anchor: Institutions + regulation
Trust anchor: Cryptography + code + data
Visibility: Private ledgers + disclosures
Visibility: On-chain transparency (pseudonymous)
Enforcement: Contracts + courts + chargebacks
Enforcement: Deterministic settlement via smart
contracts
Custody: Institutional custody
Custody: Self-custody possible (key risk)
Governance: Centralised decision-making
Governance: Token governance/DAOs (capture risk)
Key point: DeFi doesn’t eliminate trust — it changes what you trust and how you verify it.
How DeFi addresses Harvey’s problems (and new
trade-offs)
Traditional finance flaw
DeFi mechanism
New risk / trade-off
Inefficiency
Automation + self-serve execution
Gas/MEV; congestion; scaling risk
Limited access
Global participation; smaller
minimum sizes; 24/7 markets
Access ≠ protection
(scams/volatility/UX)
Opacity
Transparent ledgers + auditable
contract rules
Privacy + inference; code
complexity
Centralized control
Open protocols; token governance;
forkability
Governance capture; slow crisis
response
Lack of interoperability
Composable protocols; networked
liquidity
Contagion; bridge/oracle
dependencies
Source framing: Harvey et al. (2021), Chapter 5; Wharton x WEF (2021).
Week 1 lens:
DeFi changes digital coordination costs
Search: global liquidity pools + open access markets → lower discovery/matching costs
Tracking: shared ledger for balances and transfers → auditability/traceability
Verification: consensus + deterministic execution → anyone can verify state/history
Enforcement: smart contracts automate settlement → rules-as-code
New costs/risks: key management • contract bugs • oracle failures • MEV • governance capture •
regulatory uncertainty
Major DeFi protocol categories
(examples)
• DEXs: Uniswap — swaps via liquidity pools
• Lending: Aave/Compound — overcollateralized borrowing
• Stablecoins: MakerDAO/USDC — unit of account for pricing
• Liquid staking: Lido — staking yield + liquidity
• Derivatives: dYdX/GMX — leveraged trading without central
exchange
DeFi in context: scale & reality check
• Total Value Locked (TVL): $50+ billion globally (2024)
Material scale, but still early-stage and experimental
Reality checks:
• Smart contract risks (bugs, exploits)
• Liquidation risks (overcollateralization)
• Regulatory uncertainty (evolving globally)
• Market volatility and impermanent loss
Key
takeaways
• Institutional innovation: alternative trust models and
coordination
• Trade-offs are evident: different arrangements →
different outcomes
• Transparency vs privacy: rules are visible, but
inference is possible
• Still early: significant opportunities and significant
risks
Lab 1: Radical
transparency
(Etherscan)
Observe real transactions and wallet activity
Contrast blockchain visibility with banking
privacy norms
Link transparency to verification/tracking
costs
Guided walkthrough (10 mins)- See
Canvas
• Go to: etherscan.io
• Search the known address provided by your instructor
• Inspect: ETH balance, transaction count, recent activity
• Open: Transactions + Token Holdings + Analytics
• Discuss: Who can see transaction history in TradFi vs onchain? Benefits? Privacy harms?
Your turn (7–10 mins) + Padlet
Search the second ‘famous’ address provided
Record to Padlet: balance, tx count, most recent tx, one token held
(if any)
One surprise + one privacy concern
Identify: which digital cost fell most
(search/tracking/verification/enforcement) and why
Lab 2: DeFi
Treasure Hunt
(DeFiLlama)
Teams investigate a DeFi ‘primitive’ (DEX,
lending, stablecoins, derivatives,
aggregators)
Goal: explain value created + costs reduced +
risks introduced
Activity:
DeFiLlama (TVL
+ market scan)
Go to: defillama.com
What is total TVL across DeFi today?
Has TVL changed materially in the last 30 days? Why?
Which protocol has the highest TVL today? What
service does it offer?
Which chain has the most DeFi activity by TVL? Has
this changed recently?
Explore
protocols: Aave
+ Uniswap
What financial services do they offer?
What new markets have evolved?
How does DeFi differ from other fintech offerings?
What is the biggest risk: code, data (oracles),
governance, or regulation?
Web
resources
(optional)
DeFiLlama (analytics + TVL)
DeFi Pulse (market snapshots)
Decrypt Learn (explainers)
The Defiant (news + analysis)
Skill trees / learning maps (use for guided
self-study)
Questions?
CRICOS provider number: 00122A | RTO Code: 3046