Simply explained at Complexity Science Hub: Decentralized Finance, Blockchains and smart contracts © Pixabay

03.12.2020

News

Cryptofinance: our new research field

UNDERSTANDING CRYPTOCURRENCIES AND CRYPTO ASSETS

The exploding cryptofinance market poses not only opportunities, but very likely also new risks.

Once again the financial world is in gold-rush mood. The market value of financial products based on cryptocurrencies and cryptoassets—so-called DeFi or “Decentralized Finance” protocols—has tripled to U$ 13 billion in the last three months alone. This is despite the fact that nobody really knows about the potential risks associated with these products.

The financial crash of 2008 showed us in a vivid and dramatic way what a lack of transparency in the financial world can mean for the rest of the world. We at the Hub believe: To avoid such catastrophes in cryptofinance, DeFi products need to be much better understood.

That’s why we start a new research group—we call it “Cryptofinance”—together with our founding member AIT Austrian Institute of Technology.

The cooperation bundles the expertise of the two institutions that have been so closely linked since the founding of the Hub.

JOINING FORCES TO MAKE (CRYPTO-)FINANCIAL MARKETS SAFER

“The AIT has many years of experience in the analysis of cryptocurrency systems such as Bitcoin,” says AIT crypto expert Bernhard Haslhofer, who will head the interdisciplinary group at the Hub. “With the GraphSense platform, the AIT also has the necessary tool to analyze and measure correlations and processes in cryptoasset systems”. GraphSense was developed together with authorities from Austria and other European institutions and is now available as open source technology.

The Hub on the other side contributes its fundamental understanding of systemic risk, especially systemic risk in the financial world, developed over many years, as well as its expertise in network analysis.

“Cryptocurrencies are an exciting new development with certainly enormous possibilities”, says CSH president Stefan Thurner, who is the expert in systemic risk at the Hub. “But we first need a deeper understanding of how they work and how they interrelate to the traditional financial markets in order to make decentralized finance more secure. Knowing that, we could for example redesign these products in order to make them safer or introduce clever regulations to beware the economy, states, pension funds and even individuals from the consequences of possible systemic crashes.”

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