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DeFi Protocol Project

Build Decentralized Finance Primitives

Problem Statement: How do we create financial services without trusted intermediaries?

Jupyter Notebook Slide Deck

Learning Objectives

Understand constant product AMM mechanics
Implement collateralized lending
Create flash loan functionality
Integrate price oracles

Constant Product AMM

x · y = k

x = Reserve of Token A
y = Reserve of Token B
k = Constant (invariant)

Price increases as you buy (slippage). Fees accumulate in k.

Lending Protocol

Parameter	Typical Value	Purpose
Collateral Factor	75%	Max borrow per collateral
Liquidation Threshold	80%	When liquidation triggers
Liquidation Bonus	5%	Incentive for liquidators

Flash Loans

Borrow any amount with zero collateral
Must repay + fee in same transaction
If not repaid, entire transaction reverts
Enables atomic arbitrage without capital

Oracle Integration

// Chainlink Price Feed
(, int256 price,,,) = priceFeed.latestRoundData();
// ETH/USD price with 8 decimals

Risk Analysis

Risk	Description	Mitigation
Smart Contract	Bugs, exploits	Audits, bug bounties
Oracle	Price manipulation	TWAPs, multiple sources
Liquidation	Cascade failures	Conservative parameters
Economic	Depegs, bank runs	Insurance, reserves

Cryptoeconomics Analysis

Question	Answer
PROBLEM	Financial services without banks
INCENTIVES	LPs earn fees, liquidators earn bonus
BENEFITS/COSTS	Permissionless access; gas costs, risks
FAILURE MODE	Oracle manipulation, flash loan attacks
DESIGN CHOICES	Collateral ratios, fee structures
ALTERNATIVES	Centralized exchanges, traditional finance

Implementation Checklist

Deploy two test tokens
Create liquidity pool (AMM)
Implement swap function
Add lending deposit/withdraw
Create borrow/repay functions
Implement liquidation
Add flash loan capability
Connect Chainlink price feeds

Related Lessons

L33: DeFi Introduction
L34: AMM Mechanics
L35: Uniswap Deep Dive
L37: Lending Protocols
L38: Stablecoins
L42: Flash Loans

Resources