How Lending Pools and Leverage Staking Are Shaping DeFi’s Risk Landscape

Table of Links

Abstract and 1. Introduction

2. Related Work

3 Background

3.1 Blockchain and DeFi

3.2 Ethereum PoS

3.3 Staking Options

3.4 LSD

3.5 DeFi Lending Protocols

4 System Model and 4.1 System Participants

4.2 Leverage Staking with LSDs

5 Analytical Study

6 Empirical Study

7 Cascading Liquidation

7.1 stETH Price Deviation and Terra Crash

7.2 Cascading Liquidation and User Behaviors

8 Stress Testing

8.1 Motivation and 8.2 Simulation

9 Discussion and Future Research Directions

10 Conclusion and References

A. Aave Parameter Configuration

B. Generalized Formalization For Leverage Staking

C. Leverage Staking Detection Algorithm

A Aave Parameter Configuration

Table 3 depicts the historical changes of Aave parameter configurations. We crawl the collateralConfigurationChanged events for Aave V2 lending pool.

B Generalized Formalization For Leverage Staking B.1 Generalized Formalization

In addition to the standardized cases discussed in Section 5, real-world leverage lending situations can exhibit substantial variation among users. Specifically, we delineate the following variations using the direct leverage staking strategy as an example.

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C Leverage Staking Detection Algorithm

Algorithms 1 and 2 depict the heuristics used to detect addresses that have performed direct and indirect leverage staking respectively.

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:::info Authors:

(1) Xihan Xiong, Imperial College London, UK;

(2) Zhipeng Wang, Imperial College London, UK;

(3) Xi Chen, University of Sussex, UK;

(4) William Knottenbelt, Imperial College London, UK;

(5) Michael Huth, Imperial College London, UK.

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:::info This paper is available on arxiv under CC BY 4.0 DEED license.

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