  Permissionless blockchains offer an information environment where users can
interact privately without fear of censorship. Financial services can be
programmatically coded via smart contracts to automate transactions without the
need for human intervention or knowing user identity. This new paradigm is
known as decentralized finance (DeFi). We investigate Compound (a leading DeFi
lending protocol) to show how it works in this novel information environment,
who its users are, and what factors determine their participation. On-chain
transaction data shows that loan durations are short (31 days on average), and
many users borrow to support leveraged investment strategies (yield farming).
We show that systemic risk in DeFi arises from concentration and
interconnection, and how traditional risk management practices can be
challenging for DeFi.
