Bank error in whose favor? A case study of decentralized finance misgovernance

• Main Authors: KE, Ping Fan, NG, Ka Chung Boris
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2022
• Subjects: DeFi; misgovernance; fat-finger error; total value locked; synthetic control; incident response; Databases and Information Systems
• Online Access: https://ink.library.smu.edu.sg/sis_research/7681; https://ink.library.smu.edu.sg/context/sis_research/article/8684/viewcontent/Bank_Error_in_Whose_Favor__A_Case_Study_of_Decentralized_Finance.pdf
• Institution: Singapore Management University

Decentralized Finance (DeFi) emerged rapidly in recent years and provided open and transparent financial services to the public. Due to its popularity, it is not uncommon to see cybersecurity incidents in the DeFi landscape, yet the impact of such incidents is under-studied. In this paper, we examine two incidents in DeFi protocol that are mainly caused by misgovernance and mistake in the smart contract. By using the synthetic control method, we found that the incident in Alchemix did not have a significant effect on the total value locked (TVL) in the protocol, whereas the incident in Compound caused a 6.13% decrease in TVL. One factor that contributed to the difference in the result could be the incident response in social media platforms, and further study should investigate the possible moderating or mediating effects of public opinions and sentiment.