The Key Benefits of Implementing Lending Protocols in Decentralized Finance (DeFi)

• Pedro Renato Mello UFRJ / goAssets
• Luan Martins Parfin
• Daniel Sadoc Menasché UFRJ

DOI: https://doi.org/10.5753/cblockchain.2025.9485

Abstract

DeFi (Decentralized Finance) lending protocols offer alternatives to traditional credit by removing intermediaries and enabling leverage through smart contracts. This paper outlines the specific characteristics of these protocols and investigates the behavior of leveraged positions using Monte Carlo simulations based on Geometric Brownian Motion. We analyze the impact of asset volatility, leverage level (LTV), and liquidation risk, identifying an optimal leverage point that balances return and risk exposure.

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