Opportunities and Risks of Exchange Services in Decentralized Finance (Review of Business and Economics Studies)

Summary

• The Bank of Russia proposed a 3-year experimental legal regime starting spring 2025 allowing cryptocurrency transactions for qualified investors holding assets above 100 million rubles or annual income exceeding 50 million rubles.p.2
• A cyberattack on ByBit on February 21st, 2025 resulted in a loss of $ 1.4 billion USD, representing nearly 56% of total annual losses in the DeFi sector for that year.p.3
• According to Defillama data, 0 successful attacks on smart contracts have been recorded since 2022 due to intensive auditing and vulnerability identification by development communities.p.3
• A price oracle malfunction on Synthetix on June 25, 2019 inflated the reported South Korean won exchange rate by a factor of 1,000, allowing a trading bot to generate profits worth approximately US$ 1 billion.p.8
• An exploit in SushiSwap's RouterProcessor2 smart contract code in 2023 caused total user losses of $ 3.3 million.p.9
• Under a Constant Product Market Maker function, swapping 50 Token A in a pool of 100 Token A and 10 Token B yields 3.33 Token B, significantly altering token exchange rates in small pools.p.12

Key insights

1. Decentralized crypto exchanges democratize user access globally but simultaneously aggravate traditional financial risks and introduce novel smart contract vulnerabilities.p.1
2. The Bank of Russia justifies restricting financial institutions from offering or advertising digital currency turnover services to protect national financial stability.p.2
3. DeFi protocols and financial infrastructure suffer the highest rates of successful cyberattacks, bearing the vast majority of investor monetary losses.p.3
4. Automated Market Makers replace traditional order-matching brokers with algorithmic smart contracts that price assets dynamically using liquidity pools.p.9
5. Relying on a single price oracle data source creates a single point of failure that exposes decentralized trading platforms to market manipulation.p.8
6. DeFi governance structures encounter operational risks when attackers exploit smart contract logic through Sybil voting manipulation or malicious proposal submissions.p.10
7. Order book DEX models record limit orders directly on-chain while utilizing automated matching engines to match takers and makers.p.13
8. DEX aggregators pool fragmented liquidity across disparate trading protocols to mitigate execution slippage and lower transaction fees for digital asset traders.p.14
9. Researchers propose establishing mandatory periodic smart contract security audits conducted by accredited independent centers under Bank of Russia supervision.p.15