# DeFi and the Future of Finance ## Metadata * Author: [Campbell R. Harvey, Ashwin Ramachandran, Joey Santoro, and Fred Ehrsam](https://www.amazon.comundefined) * ASIN: B09DJV2QLC * Reference: https://www.amazon.com/dp/B09DJV2QLC * [Kindle link](kindle://book?action=open&asin=B09DJV2QLC) ## Highlights Estimates of front-running revenues, which come directly at the expense of the users, grew from hundreds of thousands of dollars when front-running was first publicly demonstrated in 2017,16 to hundreds of millions of dollars as of mid-2021.17 Large transactions, especially in illiquid markets with high slippage, are particularly susceptible to front-running. For this reason, Uniswap allows users to set a maximum slippage as a clause in the transaction. — location: [1670](kindle://book?action=open&asin=B09DJV2QLC&location=1670) ^ref-47643 This is proof, in my mind, why market mechanisms are the best way to punish uneconomic behaviour and force people to act more rationale. People will properly construct trades to make front-running Uneconomic. --- Termed Uniswap v3, the Uniswap team proposed several changes to the protocol's liquidity provisioning model, moving away from the constant product formula described earlier and toward a model that resembles an on-chain, limit order book.23 — location: [1719](kindle://book?action=open&asin=B09DJV2QLC&location=1719) ^ref-41688 --- The yTokens also allow for the construction of yield curves by analyzing the implied yields of short and longer term contracts. This allows observers to quantify investor sentiment among the various supported target assets. — location: [1786](kindle://book?action=open&asin=B09DJV2QLC&location=1786) ^ref-15592 --- Depending on investor demand, the contract can trade at a premium or discount to the index price (BTC). — location: [1851](kindle://book?action=open&asin=B09DJV2QLC&location=1851) ^ref-326 A way to measure the demand for leverage in the speculative crypto market. --- If the futures contract is trading at a premium to the index, the funding rate would be positive and longs would pay shorts. The magnitude of the funding rate is a function of the difference in price compared with the index. Likewise, if the contract is trading at a discount, the shorts pay the long positions. The funding rate incentivizes investors to take up the opposing side from the majority to keep the contract price close to the index.28 As long as the required margin is maintained, the investor can always close the position at the difference in the price of the notional position minus any negative balance held on margin. — location: [1856](kindle://book?action=open&asin=B09DJV2QLC&location=1856) ^ref-21503 --- Sets could democratize wealth management in the future by being more peer to peer, allowing fund managers to gain investment exposures through non-traditional channels, and giving all investors access to the best managers. — location: [2017](kindle://book?action=open&asin=B09DJV2QLC&location=2017) ^ref-54861 --- A series of high-profile flash attacks were executed in February 2020 on bZx Fulcrum, a lending market similar to Compound.4 With a flash loan, the attacker diverted some of the funds to purchase a levered short position and used the rest to manipulate the price of the oracle exchange on which the short position was based. The attacker then closed the short at a profit, unwound the market trade, and paid back the flash loan. The net profit was almost $300,000 worth of funds previously held by bZx, for near zero up-front cost. — location: [2208](kindle://book?action=open&asin=B09DJV2QLC&location=2208) ^ref-39762 wow --- In response to regulatory pressure, DeFi has seen an increasing number of anonymous protocol founders. Earlier this year, an anonymous team launched a fork of the original Basis project (Basis Cash27). — location: [2424](kindle://book?action=open&asin=B09DJV2QLC&location=2424) ^ref-12320 ---