US monetary policy drives defi credit cycles, HKMA study finds

Automatic liquidation could amplify shocks and trigger runs, author say


US monetary policy drives decentralised finance (defi) credit cycles in a similar way to traditional finance, research published by the Hong Kong Monetary Authority finds. 

In The Role of Monetary Conditions in Defi, authors Ronald Yip and Shifu Jiang focus on lending activity on MakerDAO, the largest defi platform. They say they began their study after noting the 2020–22 defi boom and bust coincided with the loosening and subsequent tightening of US monetary policy.

Defi’s potential to trigger

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