Journal of Credit Risk

José Aurazo
Bank for International Settlements

Julapa Jagtiani
Federal Reserve Bank of Philadelphia

We are excited to introduce the second part of our special issue series on “Cryptocurrencies, the metaverse and the future of DeFi” for The Journal of Credit Risk. The first part explored the role of fintech in shaping the credit markets, the supply of loans to nonprime consumers, the use of advanced technology and big data for credit risk management, and the risk to fintech firms themselves. As a dynamic and rapidly evolving sector at the intersection of finance and technology, fintech continues to redefine how financial services are conceptualized, delivered and consumed. In this second special issue, we focus on cryptocurrencies, decentralized finance (DeFi), Web3 and blockchain infrastructure, the implications of the metaverse and the future of the onchain financial ecosystem.

Fuelled by innovation and digitalization, fintech spans a diverse array of technologies, including blockchain, Web3, artificial intelligence (AI), big data analytics and onchain financial solutions. These advances have revolutionized payment systems, expanded access to financial products and disrupted traditional financial service models, serving as a powerful catalyst for global economic transformation. The first paper in this issue, “Fintech adoption and economic growth: exploring the global landscape” by Ishita Satyam and Ankur Mehra, investigates the relationship between consumer-facing fintech innovations and economic growth. Using panel data from 112 countries between 2011 and 2021, the authors develop a Fintech Adoption Index (FAI) based on mobile money usage, digital payments and e-commerce activity. Their findings reveal that an increase in a country’s FAI score leads to an increase in GDP per capita, suggesting fintech can make a significant contribution to local economic activities and growth.

The dramatic growth of fintech adoption around the globe has been made possible by rapid advances in technology, including Web3 (a decentralized internet), which allows for online interactions and permits users to gain better control over their own data. The metaverse has emerged to allow users to interact, socialize and conduct economic activities across multiple virtual worlds. Web3 technology can also help create more interoperable metaverses, where users can move their digital assets and identities between different virtual worlds. While the scale of metaverse usage has so far been limited, potential concerns around market conduct, integrity and investor protection are emerging that will require appropriate guardrails to ensure responsible and safe interactions within virtual worlds. In the issue’s second paper, “Metaverse momentum: analyzing financial system risks in an expanding virtual landscape”, Deepali Gautam and Puja Singh delve into these potential concerns, exploring the vulnerabilities and risks arising from unsupervised economic activities on metaverse platforms. They highlight how the metaverse could significantly influence traditional financial markets by encouraging speculative investments in virtual real estate, redirecting consumer spending toward virtual goods, and increasing reliance on cryptoassets as a primary medium of exchange. Their paper also emphasizes the metaverse risks associated with data privacy, market integrity, fraud and a lack of investor protection, underscoring the need for proactive oversight in this rapidly evolving space.

Overall, there is a need for guardrails and specific supervisory guidance for cryptocurrency markets to be designed and implemented. Cryptocurrency markets have experienced a “thousandfold” growth over the last decade, from about US$4 billion in terms of market capitalization in 2015 to more than US$4 trillion as of July 2025. While proposed guardrails have been established in the United States for stablecoins, as of July 2025 there were still no clear rules governing cryptocurrencies. Importantly, unlike in traditional securities markets, the gap between sophisticated market participants and small investors in the cryptocurrency markets is immense, as explained in the issue’s third paper. In “Beneath the crypto currents: the hidden effect of crypto ‘whales’ ”, Alan Chernoff and Julapa Jagtiani examine the trading behavior of crypto whales (very large, sophisticated crypto traders) vis-à-vis small retail investors, focusing on a specific cryptocurrency – Ether – the second largest cryptocurrency after Bitcoin. Their findings reveal that the crypto whales exhibit strategic behavior, as they tend to accumulate Ether prior to price increases, while retail investors tend to reduce them, resulting in net positive returns being accumulated by the sophisticated crypto whales and losses to small investors.

The primary motivation for the dramatic increase in interest in cryptocurrencies has been the desire to gain control over our own financial lives on decentralized networks instead of a continued reliance on traditional financial intermediaries. Thus, DeFi and large-scale blockchain platforms have experienced remarkable growth. Among DeFi innovations, decentralized autonomous organizations (DAOs), which distribute governance rights among stakeholders, have transitioned from niche experiments to mainstream organizational models in DeFi and Web3 projects. However, statistics show that the degree of decentralization on DAOs has been quite limited, because ownership of DeFi governance tokens has been concentrated among a small number of large investors. “Agent-based modeling for decentralized autonomous organizations and decentralized finance” by Qingsong Ruan, Guojun Wang, Yunbo Lu, Yilei Dong and Lin William Cong, our fourth paper, explores these issues. This paper employs the technique of agent-based modeling (ABM) to investigate how macroeconomic token supply policies and microeconomic mechanisms, such as staking, interact to influence governance in decentralized ecosystems. Ruan et al find that while a fair initial token allocation does not resolve token concentration problems in the long run, the appropriate token staking programs and inflationary token supply policies could significantly reduce the degree of concentration of governance tokens, thus enhancing DeFi platforms’ governance structures.

In closing, we extend our gratitude to all the authors for their valuable contributions to this special issue. We are also grateful for tremendous support from, and the expertise of, editors-in-chief Linda Allen and Jens Hilscher, as well as managing editor Tom Paine, in bringing this two-volume fintech special issue to fruition. The overall themes from the set of research studies in this second issue point to the need for regulatory clarity for the crypto ecosystem. Industry participants have been asking for clear guardrails and a level playing field. Investors and users desperately need regulatory protection from fraud and various forms of market manipulation.We hope the findings and open questions presented in this special issue will spark meaningful conversations about the integration of DeFi and TradFi, and about the potential future of onchain finance.