BIS Research: DeFi Borrower Behavior Key to Measuring Tokenization Risk

A study by the Bank for International Settlements (BIS) concluded that borrower behavior in the DeFi space and DeFi market dynamics are important considerations when designing and managing platforms involving tokenized assets. It noted that because DeFi borrowers face large losses in automatic liquidations (the automatic sale of collateral when a borrower’s position becomes too risky), they typically avoid overleveraging. Borrowers took a conservative approach and had sizable cushions. Additionally, DeFi users tend to deposit more money if they have experienced higher returns in the past. The study’s authors, Lioba Heimbach and Wenqian Huang, said their findings may be relevant to understanding financial stability concerns raised by DeFi. It conducted the study using data from the Ethereum blockchain, focusing on loan resilience and strategic substitution behavior. (CoinDesk)