Decentralised Finance (DeFi): Smart Contract based financial applications for the lending market

More than ten years after Satoshi Nakamoto developed a peer-to-peer payment system called Bitcoin, a new ecosystem of breakthrough technologies is rapidly mushrooming on the Ethereum blockchain. At the moment, the total value locked in DeFi applications is around $70B, marking an increase of more than 7000% since the same moment one year ago. The underlying technology is both the case blockchain and its trustless and distributed infrastructure allows the rise of decentralized, borderless, interoperable, and transparent applications which can foster financial innovations. The purpose of this paper is to offer a framework with a multi-layered approach to examine the construction of the various DeFi building blocks, as well as a deep dive on decentralized debt markets, comparing them to the traditional financial functioning. Moreover, throughout the paper, I will analyze the capabilities for these financial products to have intrinsically built on top of the application a government layer, capable of ruling the system in a decentralized manner, without the need of a centralized party or intermediate that centralize the decision power or certificate the transaction happening on the blockchain.