Skip to main content
SpringerLink
Log in

Are DeFi tokens a separate asset class from conventional cryptocurrencies?

  • Original Research
  • Published:
Annals of Operations Research Aims and scope Submit manuscript

Abstract

We test for the existence of bubbles in conventional and DeFi-focused cryptocurrencies, seeking to identify key driving forces that distinguish DeFi tokens from conventional cryptocurrencies. Utilising Generalized Supremum Augmented Dickey-Fuller tests, we identify the presence of significant bubbles across multiple markets, with relatively more stable price developments in DeFi-focused cryptocurrencies. Finally, DCC-GARCH and Diebold–Yilmaz spillover analyses of return and volatilities indicate that DeFi-focused cryptocurrencies possess stronger and more stable correlations with Ethereum than Bitcoin, and that neither cryptocurrency influenced a significant DeFi bubble formation that occurred during 2020. Results suggest that the DeFi market should be viewed as a separate asset class from conventional cryptocurrencies. Our findings provide important information for investors seeking additional diversification opportunities, as well as well as policymakers and regulatory authorities separating and better understanding these growing asset classes.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Fig. 1
Fig. 2
Fig. 3
Fig. 4

Similar content being viewed by others

Notes

  1. A brief survey on various aspects of DeFi can be found in Popescu (2020), or for a broader view, see Zetzsche et al. (2020).

  2. Before Chainlink, there was mechanism for smart contracts to interact in real-time data outside their native chains in a decentralized manner. Hence, Chainlink filled a significant gap, where Chainlink price-feeds became an industry standard, with over 900 decentralized oracle networks running, each collectively helping to secure tens of billions of dollars utilized by hundreds of DeFi applications across several blockchains. Therefore, it is reasonable to behaviour of price data for these two projects, Maker and Chainlink, can be associated with the level of adoption or their fundamental influence within the DeFi space.

References

  • Agosto, A., & Cafferata, A. (2020). Financial bubbles: A study of co-explosivity in the cryptocurrency market. Risks, 8(2), 34.

    Google Scholar 

  • Ahelegbey, D. F., Billio, M., & Casarin, R. (2016). Bayesian graphical models for structural vector autoregressive processes. Journal of Applied Econometrics, 31(2), 357–386.

    Google Scholar 

  • Akyildirim, E., Corbet, S., Cumming, D., Lucey, B., & Sensoy, A. (2020a). Riding the wave of crypto exuberance: The potential misusage of corporate blockchain announcements. Technological Forecasting and Social Change, 159, 120191.

    Google Scholar 

  • Akyildirim, E., Corbet, S., Sensoy, A., & Yarovaya, L. (2020b). The impact of blockchain related name changes on corporate performance. Journal of Corporate Finance, 65, 101759.

    Google Scholar 

  • Atzei, N., Bartoletti, M., & Cimoli, T. (2017, April). A survey of attacks on ethereum smart contracts (sok). In International conference on principles of security and trust (pp. 164–186). Springer, Berlin, Heidelberg.

  • Baele, L. (2005). Volatility spillover effects in European equity markets. Journal of Financial and Quantitative Analysis, 40, 373–401.

    Google Scholar 

  • Bekaert, G., Hodrick, R. J., & Zhang, X. (2009). International stock return co-movements. Journal of Finance, 64(6), 2591–2626.

    Google Scholar 

  • Bollerslev, T. (1990). Modelling the coherence in short-run nominal exchange rates: A multivariate generalized ARCH model. Review of Economics and Statistics, 72, 498–505.

    Google Scholar 

  • Bouri, E., Das, M., Gupta, R., & Roubaud, D. (2018). Spillovers between Bitcoin and other assets during bear and bull markets. Applied Economics, 50(55), 5935–5949.

    Google Scholar 

  • Bouri, E., Shahzad, S. J. H., & Roubaud, D. (2019). Co-explosivity in the cryptocurrency market. Finance Research Letters, 29, 178–183.

    Google Scholar 

  • Catchlove, P. (2017). Smart contracts: A new era of contract use. Available at SSRN 3090226

  • Celeste, V., Corbet, S., & Gurdgiev, C. (2020). Fractal dynamics and wavelet analysis: Deep volatility and return properties of Bitcoin, Ethereum and Ripple. The Quarterly Review of Economics and Finance, 76, 310–324.

    Google Scholar 

  • Chen, Y., & Bellavitis, C. (2019). Decentralized finance: Blockchain technology and the quest for an open financial system. Stevens Institute of Technology School of Business Research Paper. https://doi.org/10.2139/ssrn.3418557

    Article  Google Scholar 

  • Christiansen, C. (2007). Volatility-spillover effects in European bond markets. European Financial Management, 13(5), 923–948.

    Google Scholar 

  • Conlon, T., Corbet, S., & McGee, R. J. (2020). Are cryptocurrencies a safe haven for equity markets? An international perspective from the COVID-19 pandemic. Research in International Business and Finance, 54, 101248.

    Google Scholar 

  • Conlon, T., & McGee, R. J. (2020). Safe haven or risky hazard? Bitcoin during the COVID-19 bear market. Finance Research Letters, 35, 101607.

    Google Scholar 

  • Corbet, S., Cumming, D. J., Lucey, B. M., Peat, M., & Vigne, S. (2020c). The destabilising effects of cryptocurrency cybercriminality. Economics Letters, 191, 108741.

    Google Scholar 

  • Corbet, S., Goodell, J. W., & Gunay, S. (2020b). Co-movements and spillovers of oil and renewable firms under extreme conditions: New evidence from negative WTI prices during COVID-19. Energy Economics, 92, 104978.

    Google Scholar 

  • Corbet, S., Goodell, J. W., Gunay, S., & Kaskaloglu, K. (2021b). Are DeFi tokens a separate asset class from conventional cryptocurrencies? Available at SSRN: https://ssrn.com/abstract=3810599

  • Corbet, S., Goodell, J. W., & Gunay, S. (2022). What drives DeFi prices? Investigating the effects of investor attention. Finance Research Letters, 48, 102883.

    Google Scholar 

  • Corbet, S., Hou, Y., Hu, Y., & Oxley, L. (2021a). The danger of cryptocurrency pump-and-dumps: Analysing the development of research & regulation. Understanding Cryptocurrency Fraud: THe Challenges and Headwinds to Regulate Digital Currencies, 2, 187.

    Google Scholar 

  • Corbet, S., & Katsiampa, P. (2020). Asymmetric mean reversion of Bitcoin price returns. International Review of Financial Analysis, 71, 101267.

    Google Scholar 

  • Corbet, S., Larkin, C., & Lucey, B. (2020d). The contagion effects of the COVID-19 pandemic: Evidence from gold and cryptocurrencies. Finance Research Letters, 35, 101554.

    Google Scholar 

  • Corbet, S., Larkin, C., Lucey, B., Meegan, A., & Yarovaya, L. (2020a). Cryptocurrency reaction to fomc announcements: Evidence of heterogeneity based on blockchain stack position. Journal of Financial Stability, 46, 100706.

    Google Scholar 

  • Corbet, S., Lucey, B., Urquhart, A., & Yarovaya, L. (2019). Cryptocurrencies as a financial asset: A systematic analysis. International Review of Financial Analysis, 62, 182–199.

    Google Scholar 

  • Corbet, S., Lucey, B., & Yarovaya, L. (2018a). Datestamping the Bitcoin and Ethereum bubbles. Finance Research Letters, 26, 81–88.

    Google Scholar 

  • Corbet, S., Meegan, A., Larkin, C., Lucey, B., & Yarovaya, L. (2018b). Exploring the dynamic relationships between cryptocurrencies and other financial assets. Economics Letters, 165, 28–34.

    Google Scholar 

  • Diebold, F. X., & Yilmaz, K. (2009). Measuring financial asset return and volatility spillovers, with application to global equity markets. Economic Journal, 119(534), 158–171.

    Google Scholar 

  • Diebold, F. X., & Yilmaz, K. (2012). Better to give than to receive: Predictive directional measurement of volatility spillovers. International Journal of Forecasting, 28(1), 57–66.

    Google Scholar 

  • Engle, R. (2002). Dynamic conditional correlation: A simple class of multivariate generalized autoregressive conditional heteroskedasticity models. Journal of Business & Economic Statistics, 20(3), 339–350.

    Google Scholar 

  • Fletcher, E., Larkin, C., & Corbet, S. (2021). Countering money laundering and terrorist financing: A case for bitcoin regulation. Research in International Business and Finance, 56, 101387.

    Google Scholar 

  • Fry, J. (2018). Booms, busts, and heavy tails: The story of Bitcoin and cryptocurrency markets? Economics Letters, 171, 225–229.

    Google Scholar 

  • Fry, J., & Cheah, E. T. (2016). Negative bubbles and shocks in cryptocurrency markets. International Review of Financial Analysis, 47, 343–352.

    Google Scholar 

  • Giudici, P., & Abu-Hashish, I. (2019). What determines bitcoin exchange prices? A network VAR approach. Finance Research Letters, 28, 309–318.

    Google Scholar 

  • Giudici, P., & Pagnottoni, P. (2019). High frequency price change spillovers in bitcoin markets. Risks, 7(4), 111.

    Google Scholar 

  • Goodell, J. W., & Goutte, S. (2021). Co-movement of COVID-19 and Bitcoin: Evidence from wavelet coherence analysis. Finance Research Letters, 38, 101625.

    Google Scholar 

  • Gudgeon, L., Perez, D., Harz, D., Livshits, B., & Gervais, A. (2020, June). The decentralized financial crisis. In 2020 Crypto Valley Conference on Blockchain Technology (CVCBT) (pp. 1–15). IEEE.

  • Guesmi, K., Saadi, S., Abid, I., & Ftiti, Z. (2019). Portfolio diversification with virtual currency: Evidence from bitcoin. International Review of Financial Analysis, 63, 431–437.

    Google Scholar 

  • Gunay, S. & Muhammed, S. (2022). Identifying the role of investor sentiment proxies in NFT market: comparison of google trend, fear-greed index and VIX. In Annual event of finance research letters, CEMLA conference: new advances in international finance, Mexico City.

  • Gunay, S., & Kaskaloglu, K. (2022). Does utilizing smart contracts induce a financial connectedness between ethereum and non-fungible tokens? Research in International Business and Finance, 63, 101773.

    Google Scholar 

  • Henríquez, R., Martínez de Osés, F. X., Martínez Marín, J. E., & Tomás, C. (2020). A defibased model for maritime trade finance. In Maritime Transport VIII: proceedings of the 8th International Conference on Maritime Transport: Technology, Innovation and Research: Maritime Transport’20 (pp. 278–300). Universitat Politècnica de Catalunya. Departament de Ciència i Enginyeria Nàutiques.

  • Hull, J. C. (2003). Options futures and other derivatives. Pearson Education India.

    Google Scholar 

  • Jahanshahloo, H., Corbet, S., & Oxley, L. (2022). Seeking Sigma: Time-of-the-Day Effects on the Bitcoin Network. Available at SSRN.

  • Jalal, R. N. U. D., Alon, I., & Paltrinieri, A. (2021). A bibliometric review of cryptocurrencies as a financial asset. Technology Analysis & Strategic Management. https://doi.org/10.1080/09537325.2021.1939001

    Article  Google Scholar 

  • Katsiampa, P., Corbet, S., & Lucey, B. (2019a). Volatility spillover effects in leading cryptocurrencies: A BEKK-MGARCH analysis. Finance Research Letters, 29, 68–74.

    Google Scholar 

  • Katsiampa, P., Corbet, S., & Lucey, B. (2019b). High frequency volatility co-movements in cryptocurrency markets. Journal of International Financial Markets, Institutions and Money, 62, 35–52.

    Google Scholar 

  • Kim, T. H., Leybourne, S., & Newbold, P. (2002). Unit root tests with a break in innovation variance. Journal of Econometrics, 109(2), 365–387.

    Google Scholar 

  • Koutmos, D. (2018). Return and volatility spillovers among cryptocurrencies. Economics Letters, 173, 122–127.

    Google Scholar 

  • Kurka, J. (2019). Do cryptocurrencies and traditional asset classes influence each other? Finance Research Letters, 31, 38–46.

    Google Scholar 

  • Kyriazis, N., Papadamou, S., & Corbet, S. (2020). A systematic review of the bubble dynamics of cryptocurrency prices. Research in International Business and Finance, 54, 101254.

    Google Scholar 

  • Kyriazis, N., Papadamou, S., Tzeremes, P., & Corbet, S. (2022). The differential influence of social media sentiment on cryptocurrency returns and volatility during COVID-19. The Quarterly Review of Economics and Finance. https://doi.org/10.1016/j.qref.2022.09.004

    Article  Google Scholar 

  • Leybourne, S. J., & Newbold, P. (2003). Spurious rejections by cointegration tests induced by structural breaks. Applied Economics, 35(9), 1117–1121.

    Google Scholar 

  • Mukherjee, S., Larkin, C., & Corbet, S. (2021). Cryptocurrency Ponzi schemes. Understanding Cryptocurrency Fraud: THe Challenges and Headwinds to Regulate Digital Currencies, 2, 111.

    Google Scholar 

  • Nazlioglu, S., Erdem, C., & Soytas, U. (2013). Volatility spillover between oil and agricultural commodity markets. Energy Economics, 36, 658–665.

    Google Scholar 

  • Ng, A. (2000). Volatility spillover effects from Japan and the US to the Pacific-Basin. Journal of International Money and Finance, 19(2), 207–233.

    Google Scholar 

  • Phillips, R. C., & Gorse, D. (2017). Predicting cryptocurrency price bubbles using social media data and epidemic modelling. In 2017 IEEE symposium series on computational intelligence (SSCI) (pp. 1–7). IEEE.

  • Phillips, P. C. B., Shi, S., & Yu, J. (2015). Testing for multiple bubbles: Historical episodes of exuberance and collapse in the S&P 500. International Economic Review, 56(4), 1043–1078.

    Google Scholar 

  • Phillips, P. C., Wu, Y., & Yu, J. (2011). Explosive behaviour in the 1990s Nasdaq: When did exuberance escalate asset values? International Economic Review, 52(1), 201–226.

    Google Scholar 

  • Popescu, A. D. (2020). Decentralized finance (DeFi)–the lego of finance. Social Sciences and Education Research Review, 7(1), 321.

    Google Scholar 

  • Qin, K., Zhou, L., Livshits, B., & Gervais, A. (2020). Attacking the DeFi ecosystem with flash loans for fun and profit. arXiv preprint arXiv:2003.03810.

  • Raskin, M. (2017). The law and legality of smart contracts. Georgetown Law Technology Review, 1–2, 305–340.

    Google Scholar 

  • Schär, F., (2020), Decentralized finance: On blockchain-and smart contract-based financial markets, Available at SSRN 3571335

  • Scott, H. S. (2016). Connectedness and contagion: Protecting the financial system from panics. MIT Press.

    Google Scholar 

  • Symitsi, E., & Chalvatzis, K. J. (2018). Return, volatility and shock spillovers of Bitcoin with energy and technology companies. Economics Letters, 170, 127–130.

    Google Scholar 

  • Szabo, N. (1996). Smart contracts: Building blocks for digital markets. EXTROPY: the Journal of Transhumanist Thought, 18(2), 28.

    Google Scholar 

  • Trabelsi, N. (2018). Are there any volatility spillover effects among cryptocurrencies and widely traded asset classes? Journal of Risk and Financial Management, 11(4), 66.

    Google Scholar 

  • Wang, S., Yuan Y., Wang, X., Li, J., Qin, R., & Wang, F-Y. (2018). An overview of smart contract: architecture, applications, and future trends. In 2018 IEEE Intelligent vehicles symposium (IV) (IEEE)

  • Yi, S., Xu, Z., & Wang, G. J. (2018). Volatility connectedness in the cryptocurrency market: Is Bitcoin a dominant cryptocurrency? International Review of Financial Analysis, 60, 98–114.

    Google Scholar 

  • Zetzsche, D. A., Arner, D. W., & Buckley, R. P. (2020). Decentralized finance. Journal of Financial Regulation, 6(2), 172–203.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. DCU Business School, Dublin City University, Dublin, Ireland

    Shaen Corbet

  2. College of Business, The University of Akron, Akron, USA

    John W. Goodell

  3. American University of the Middle East, Egaila, Kuwait

    Samet Gunay & Kerem Kaskaloglu

Authors
  1. Shaen Corbet
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. John W. Goodell
    View author publications

    You can also search for this author in PubMed Google Scholar

  3. Samet Gunay
    View author publications

    You can also search for this author in PubMed Google Scholar

  4. Kerem Kaskaloglu
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to John W. Goodell.

Additional information

Publisher's Note

Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.

Rights and permissions

Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Corbet, S., Goodell, J.W., Gunay, S. et al. Are DeFi tokens a separate asset class from conventional cryptocurrencies?. Ann Oper Res 322, 609–630 (2023). https://doi.org/10.1007/s10479-022-05150-z

Download citation

  • Accepted:

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s10479-022-05150-z

Keywords

Search

Navigation