  The rise of Decentralized Finance ("DeFi") on the Ethereum blockchain has
enabled the creation of lending platforms, which serve as marketplaces to lend
and borrow digital currencies. We first categorize the activity of lending
platforms within a standard regulatory framework. We then employ a novel
grouping and classification algorithm to calculate the percentage of fund flows
into DeFi lending platforms that can be attributed to debt created elsewhere in
the system ("debt-financed collateral"). Based on our results, we conclude that
the wide-spread use of stablecoins as debt-financed collateral increases
financial stability risks in the DeFi ecosystem.
