Innovation in Decentralized Finance (DeFi)

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Lehrstuhl für Innovation, Strategie und Organisation


In recent years, a promising technology has found its way into Finance: blockchain.
Blockchain is a technology performing computational transactions. Unlike other technologies, it relies on a decentralized architecture. By that, it is able to guarantee the validity of data and transactions. Based on this proposition, the technology promises to perform almost any kind of transaction without the need of having a third party verifying the partners involved and the correctness of the transaction. This, however, is the main value-add of all intermediaries in the financial system.

Consequently, blockchain represents a significant threat for disruption to the business models of incumbent financial services firms. But it also offers significant efficiency gains to the system which may ultimately benefit the customers. Most apparently, without a third party being involved, this could increase the speed of services and reduce its costs. Moreover, blockchain could change Finance in a broader sense to becoming more inclusive. While many people around the world do not have access to the financial system in the way it operates now, blockchain-based solutions are open to anyone with access to the internet.

Decentralized Finance (DeFi) is an exciting and rapidly growing sector, triggering multiple innovations to core or complementary technologies (Smart Contracts, zk and Optimistic Roll-ups, Fully Homomorphic Encryptions, AMM, etc). However, it is still in its infancy. As a typical emerging industry it bears a high amount of uncertainty, in particular, technological and market uncertainty. The crash of the Terra ecosystem due to the failure of its native stablecoin is an outstanding event undermining this uncertainty. Also issues more related to the core technology create uncertainty; e.g., the “oracle issue”, which needs to be solved for the “tokenization of everything”. Besides that, clients in Finance show high resistance against changing their service provider in order to adopt new solutions, limiting (fast) mass adoption.
Therefore, the status quo of the technology makes it necessary to question critically the applicability and the value-add of the technology for enabling and support of innovative products, business models and platforms in financial services.

The aim of your work is to contribute to a clearer understanding of the possibilities, but also the limitations, of the adoption of blockchain in financial services. By that, your goal is to derive practical implications for managing the uncertainty inherent in DeFi.
Within this realm, relevant research questions and research topics are in particular::
- What are current and potential use cases of blockchain/DLT in Finance? Which unsolved challenges can be addressed with DLT? Building a reference model for the classification of Blockchain-use cases and business models
- How do potential clients evaluate the new offerings?

Technology offerings:
- What are the benefits and shortcomings of the technology in general and within certain sub-categories (e.g., AMM, dAsset Management)?
- Which blockchain solution suits which use case best (e.g., w.r.t. blockchain trilemma, consensus mechanisms, etc.)?
- How does the technology perform against current alternatives (e.g., stablecoins vs. classical payment methods)?

Innovations: Identification of processes, methods, best practices and patterns with regard to innovations in DeFi (products, services, business models)

- Consideration of network effects within individual applications as well as between different applications
- Development of business model alternatives, definition of evaluation options and derivation of financing models
- Blockchain-data-driven development and validation of business models

Goverannce: Fair, participative and practicable governance models for the operation of Blockchain/DLT value creation networks

These topics can be covered by applying multiple theoretical lenses and concepts in the context of technology and innovation management, e.g. business model innovation, open innovation, ecosystem perspectives, resource-based view, technology acceptance, dominant design, etc.
Keywords: Business Model Innovation, Blockchain, Distributed Ledger Technology, Decentralized Finance, DeFi, Smart Contracts, Stablecoins, Crypto, Digitization, Digital Ecosystems, Industry 4.0, Internet of Things (IOT)