Actuarial Notes

Decentralized Finance for Actuaries: A Blockchain-Based Financial System

By Jen Houng (Erik) Lie, Gwen Yun Weng and Wai Chak Tse · Society of Actuaries Research Institute · 2022

Study guide: Exam CFE-201

A March 2022 Society of Actuaries Research Institute report that introduces actuaries to decentralized finance (DeFi), an emerging financial system powered by blockchain technology. It explains what DeFi is, its key characteristics, applications, opportunities and risks, how DeFi might be adopted alongside the current financial system, and what it means for practicing and aspiring actuaries. A glossary and a brief history of DeFi are included as appendices.

On the syllabus

1 Introduction

2 What is DeFi?

  • 2.1 A Brief Introduction to Blockchain
  • 2.2 A Brief Introduction to DeFi
  • 2.3 The Growth of DeFi
  • 2.4 Why Embrace DeFi?

3 Key Characteristics of DeFi

  • 3.1 Disintermediated
  • 3.2 Decentralized
  • 3.3 Permissionless
  • 3.4 Composable
  • 3.5 Transparent and Immutable

4 Applications of DeFi

  • 4.1 Decentralized Exchanges
  • 4.2 Stablecoins
  • 4.3 Lending and Borrowing
  • 4.4 Portfolio Management
  • 4.5 Derivatives
  • 4.6 Insurance

5 Opportunities and Risks in DeFi

  • 5.1 Investment Activities in DeFi
  • 5.2 Native Financial System for a New Digital Economy
  • 5.3 Risks in DeFi
  • 5.4 Risk Mitigation Strategies

6 Adoption of DeFi

  • 6.1 Existing Barriers to the Adoption of DeFi
  • 6.2 Pathways towards Adoption

7 Implications for Actuaries

  • 7.1 Portfolio Management
  • 7.2 Insurance Applications
  • 7.3 Work Opportunities beyond Insurance

8 Acknowledgments

Appendix A Glossary

Appendix B A Brief History of DeFi

References

About The Society of Actuaries Research Institute

Sources