Ky iazēs, Nikos K.; Economou, Emmanouil Ma ios L.
A icle
Un eiling he impac s o geopoli ical isk on he ansi ion
o he decen alized inancial landscape
Peace Economics, Peace Science and Public Policy (PEPS)
P o ided in Coope a ion wi h:
De G uy e B ill
Sugges ed Ci a ion: Ky iazēs, Nikos K.; Economou, Emmanouil Ma ios L. (2025) : Un eiling he
impac s o geopoli ical isk on he ansi ion o he decen alized inancial landscape, Peace
Economics, Peace Science and Public Policy (PEPS), ISSN 1554-8597, De G uy e , Be lin, Vol. 31, Iss.
1, pp. 57-89,
h ps://doi.o g/10.1515/peps-2024-0048
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Nikolaos A. Ky iazis and Emmanouil M. L. Economou*
Un eiling he Impac s o Geopoli ical Risk on
he T ansi ion o he Decen alized Financial
Landscape
h ps://doi.o g/10.1515/peps-2024-0048
Recei ed No embe 12, 2024; accep ed Decembe 22, 2024; published online Feb ua y 3, 2025
Abs ac : This pape examines he dynamic in e play be ween he global geopoli -
ical isk and ele en decen alized finance (DeFi) digi al cu encies du ing he in-
fla iona y bu den caused by he Russia-Uk aine wa episodes. Daily da a spanning
om 13 Oc obe 2021 o 29 Oc obe 2024 and he inno a i e Quan ile-Vec o Au o -
eg essi e (Q-VAR) me hodology a e employed o es ima ing he pai wise, join and
ne wo k linkages a he lowe , middle and uppe quan iles. High le els o geopoli ical
isk a e mo e connec ed wi h bull ma ke s o he DeFi asse s and new wa episodes
s eng hen his ela ion. Geopoli ical ensions combined wi h high infla ion lead o
he GPR becoming majo de e minan o DeFi ma ke s so con ibu ing o he
ansi ion o he digi al decen alized cashless financial sys em. Make is he leading
DeFi asse in his ansi ion and cons i u es a p omising successo o fia cu encies
ha suffe om de alua ion gene a ed by conflic s.
Keywo ds: geopoli ical isk; decen alized finance; Russia-Uk aine wa ; infla ion;
cashless economy; dynamic connec edness
JEL Classifica ion: E44; E52; F30; G15; H56
1 In oduc ion
In ense wa episodes du ing he las yea s ha e b ough o he o e on he necessi y
o u he elabo a ion on he impac s ha geopoli ical unce ain y causes on he
eal economy and financial ma ke s in a global con ex . The se ies o subsequen
pe iods o u moil such as he Global Financial C isis, he So e eign Deb C isis and
he Co id-19 pandemic ha e ueled he need o expansiona y fiscal ac ion aking and
uncon en ional mone a y policies (A onso e al. 2018; Chen e al. 2016; Cukie man
*Co esponding au ho : Emmanouil M. L. Economou, Depa men o Economics, Uni e si y o
Thessaly, Volos, G eece, E-mail: [email p o ec ed]
Nikolaos A. Ky iazis, Depa men o Accoun ing and Finance, Uni e si y o Thessaly, Volos, G eece,
E-mail: [email p o ec ed]
Peace Econ. Peace Sci. Pub. Pol. 2025; 31(1): 57–89
Open Access. © 2024 he au ho (s), published by De G uy e . This wo k is licensed unde he
C ea i e Commons A ibu ion 4.0 In e na ional License.
2013; Mishkin 2009; Papadamou, Spy omi os, and Ky iazis 2018; Papadamou, Ky -
iazis, and Tze emes 2019a, 2019b; Papadamou, Ky iazis, and Tze emes 2020, Papa-
damou, Si iopoulos, Ky iazis 2020; Wu, Xie, and Zhang 2024). These ha e led o
liquidi y in usion in an unp eceden ed le el, lea ing li le space o policymaking
since he ou b eak o he Russia-Uk aine conflic . Ele a ed geopoli ical s ess has
caused supply chain dis up ions and has b ough abou in ense infla iona y
phenomena.
This has esusci a ed conce ns abou he sui abili y o na ional cu encies as
s o es o alue and has igge ed a i id deba e abou he u gency o adop ing mo e
eligible, low-cos and digi al o ms o liquidi y (Chen and Siklos 2022; Maouchi, Cha -
eddine, and El Mon asse 2022; Zhao 2022). Such cu encies would be decen alized,
enjoying high demand and good pe o mance and would be able o ac as shields om
infla ion. In hese condi ions, geopoli ical isk could become a majo de e minan o
economic and financial ac i i y. I s g owing oo p in on economic and financial
ma e s enables geopoli ical unce ain y o unc ion as he s ee ing wheel o he
ans o ma ion o he exis ing financial landscape in o a mo e flexible financial sys em
wi h mainly digi al o ms o money and in es men s.
Decen alized finance (DeFi) cons i u es an asse ca ego y wi h no equi emen o
abide by he manda es o a cen al au ho i y no o con o m o egula ion. DeFi asse s
a e based on dis ibu ed ledge s and sma con ac s –wi h he use o blockchain – ha
pe mi o a oid he use o in e media ies such as banking ins i u ions, b oke s o
exchanges (Maka o and Schoa 2022; Ze zsche, A ne , and Buckley 2020). They a e
conside ed o be p omising successo s and po en ially imp o ed al e na i es o
adi ional na ional cu encies. The la e a e p one o de alua ion due o hei
ulne abili y o infla iona y p essu es when c ises eme ge. Cu ency de alua ions
eme ge due o supply sho ages being accompanied wi h high demand-o igina ed
infla ion and money sho ages which ha e o be con on ed wi h ample liquidi y
in usions by cen al banks. New money c ea ed and injec ed o he economy leads
o upwa ds p essu es on he p ice le els so esul s in de alua ion o fia na ional
cu enciesa and weal h educ ions(Chiu and Molico 2010). This unde lines he need o
ehicles o p o ec om weal h and income losses.
The e is a h ee- old pe spec i e by which he ela ion be ween geopoli ical isk
and decen alized finance should be conside ed. Fi s ly, om he iewpoin o lack
o s abili y in financial sys ems b ough abou om geopoli ical ensions. Financial
sys ems equen ly expe ience se e e ins abili y as a esul o e en s like cu ency
dep ecia ion o economic penal ies. Because o his unce ain y, people and companies
a e sea ching o mo e secu e and dependable al e na i es o adi ional financing.
Gi en ha i unc ions on a ounda ion ha is bo h censo ship- esis an and
bo de less, decen alized finance offe s an appealing al e na i e. I is especially
a ac i e o consume s in a eas wi h uns able economies as i enables hem o access
58 N. A. Ky iazis and E. M. L. Economou
financial se ices wi hou being cons ained by egional egula o y amewo ks. Sec-
ondly, he e is he angle o he impac s o GPR on ma ke beha iou . Inc eased ma ke
ola ili y may esul om an a ay o geopoli ical e en s, such as wa s, ade dispu es,
and poli ical changes. These ypes o inciden s equen ly unde mine us in adi ional
financial ins i u ions, leading in es o s o u n o decen alized asse s like c yp o-
cu ency o sa e y. These digi al cu encies a e becoming inc easingly appealing as
hedges in unce ain imes since hey a e ega ded o cons i u e a ype o insu ance
agains ma ke swings and he possible loss o alue connec ed wi h adi ional asse s.
Thi dly, he egula o y amewo k is-à- is adop ion o decen alized finance should be
conside ed. Go e nmen s may impose mo e s ingen laws on digi al asse s in esponse
o ising geopoli ical ensions, which migh make i mo e difficul o DeFi pla o ms o
gain ac ion. Howe e , because o hei in insic design, which encou ages decen al-
iza ion and au onomy om cen alized au ho i y, hese legisla i e e o ms may also
lead o inc eased in e es in DeFi sys ems. Despi e egula o y obs acles, demand o
hese pla o ms may ise as consume s lea nmo eabou head an ageso DeFi,suchas
enhanced p i acy and less eliance on con en ional banking sys ems.
Inspi ed by such impo an con empla ions abou he connec ion o wa issues
wi h he e olu ion o he economy, his s udy del es in o in es iga ing he dynamic
ela ionship ha global geopoli ical isk exhibi s wi h ele en DeFi digi al cu encies
wi h la ge ma ke capi aliza ion. The mode n Quan ile-VAR me hodology as in
Ky iazis e al. (2024) is employed o es ima e he ne pai wise di ec ional connec ed-
ness, he ne ex ended join connec edness and he ne wo k connec edness. Exami-
na ion akes place o al e na i e le els o GPR and bea , no mal o bull DeFi ma ke s
ep esen ed by he lowe , middle and uppe quan iles.
This esea ch is buil on ea lie s udies such as Koop, Pesa an, and Po e (1996),
Pesa an and Shin (1998), Gabaue (2020), S en o s, Cha zian oniou, and Gabaue (2022),
Dimi iadis, Kou sa os, and Sa a (2024a, 2024b, 2024c), Hong e al. (2024) and Ky iazis
e al. (2024). This wo k is connec ed wi h ea lie academic pape s ha in es iga e how
geopoli ical isk is linked wi h he eal economy (Bales a, Ca uso, and Di Domizio
2024; Calda a and Iaco iello 2022; Calda a e al. 2022; Ky iazis and Economou 2023; Li
e al. 2024; Yang e al. 2023) and financial ma ke s (Bau and Smales 2020; Chiang 2022;
Fang e al. 2024; Ngo e al. 2024; Salisu, Lasisi, and Tchankam 2022; Selmi, Bouoiyou ,
and Woha 2022; Wang, Wu, and Xu 2019; Zheng e al.2023). This pape fills a significan
gap in ele an li e a u e by p o iding a h ee- old con ibu ion. Fi s ly, his is he fi s
s udy ocusing on he impac o geopoli ical isk on decen alized finance ma ke s.
Secondly, he dynamic connec edness is examined bo h by pai wise and join pe -
spec i es as well as h ough he lens o ne wo k connec edness by employing h ee
al e na i e ad anced specifica ions o he Quan ile-VAR me hodology. Thi dly, his
pape sheds ligh on he po en ial o he ansi ion o he cashless digi al economy and
financial ma ke s h ough he p ism o infla ion caused by bo h uncon en ional
Impac s o Geopoli ical Risk 59
mone a y policies and supply sho ages in condi ions o ele a ed geopoli ical unce -
ain y. The eby, his s udy ad ances esea ch on he impac s o geopoli ical isk on
financial ma ke s by examining financial e olu ion h ough he lens o decen alized
finance which cons i u es he mos inno a i e and p omising aspec o money inno-
a ion and de elopmen . Shedding ligh on his connec ion p o ides a quan um leap
owa ds be e unde s anding he ans o ma ion pe spec i es o he financial ou look
and he p ospec s o p og ess in he field o mone a y financial economics. The
infla iona y bu den imposed by geopoli ical ensions has ende ed he easibili y o
he mone a y e olu ion he benchma k o he iabili y o economies and financial
ma ke s. This pape unde akes he ask o pa e he way owa ds u he explo a ion
o he ex en by which decen alized digi al mone a y ins umen s could subs i u e o
complemen majo na ional cu encies ha suffe om de alua ion p essu es s em-
ming om geopoli ical conflic s.
Empi ical ou comes e eal ha high le els o geopoli ical isk a e mo e connec ed
wi h bull ma ke s o he DeFi asse s and ha he eme gence o new wa episodes
ende igh e he linkages be ween he GPR and hese inno a i e o ms o liquidi y
and in es men . Ele a ed geopoli ical unce ain y combined wi h high infla iona y
p essu es make he geopoli ical isk acqui e a majo ole on de e mining he DeFi
ma ke s. This con ibu es o he e olu ion o he exis ing financial landscape and i s
ans o ma ion in o a digi al cashless financial sys em wi h no cen al au ho i ies.
No ably, Make is he leading o ce in he effo o decen alized finance asse s o gain
popula i y in in es o s p e e ences and cons i u e a p omising successo o na ional
fia cu encies ha suffe om de alua ion in imes o c ises oo ed in wa conflic s.
The emainde o his s udy is s uc u ed as ollows. Sec ion 2 p o ides he
li e a u e e iew abou he ela ion o geopoli ical isk wi h money and infla ion, he
financial ma ke s in gene al and digi al cu encies specifically. Sec ion 3 p esen s an
o e iew o he main geopoli ical e en s in he pe iod examined wi h he Russo-
Uk ainian Wa a he epicen e . We p oceed o such an analysis because we belie e
ha his con ibu es o a be e unde s anding and in e p e a ion o he a iables
selec ed and he econome ic esul s p esen ed in he ollowing Sec ions 4 and 5.
Sec ion 4 desc ibes he da a and he me hodological amewo ks employed o
econome ic es ima ions. Sec ion 5 illus a es he empi ical esul s, and p o ides he
econome ic analysis and he economic unde pinnings o he ou comes. Finally,
Sec ion 6 concludes and sugges s a enues o u he esea ch as ega ds he impac s
o GPR on he eal economy and financial ma ke s.
2 Li e a u e Re iew
So a , he e is an eme ging li e a u e which connec s he geopoli ical isk o a coun y
o a ious economic aspec s ega ding i s o e all mac oeconomic pe o mance. Due o
60 N. A. Ky iazis and E. M. L. Economou
space limi a ions and because o he specializa ion o ou pape we canno ep oduce
he e all he a ie y o his li e a u e, hus, we ha e chosen o ep oduce a special and
cha ac e is ic pa o i , which deals wi h how he GPR affec s financial ma ke s and
hei ins i u ions, an a gumen which we also suppo in his pape .
2.1 GPR and Financial Ma ke s in Gene al
To s a wi h, one should men ion he seminal pape o Calda a and Iaco iello (2022)
who a gue ha when he GPR o a coun y inc eases, his leads o lowe in es men
ac i i y and highe unemploymen . In addi ion, Das, Kannadhasan, and Bha a-
cha yya (2019) p o ide e idence ha he US geopoli ical isk is less influen ial han
he US economic policy unce ain y on eme ging s ock ma ke s and ha such impac s
a y ac oss coun ies.
These findings coincide wi h hose o Kannadhasan and Das (2020) who ha e
ound ha he GPR is p esen ing nega i e impac s on Asian eme ging s ock ma ke s a
lowe quan iles while i p esen s posi i e effec s a middle and uppe quan iles. They
also coincide wi h he findings o Choi (2022) who s udied he impac o global
geopoli ical isks on s ock ma ke ola ili ies o Sou h Ko ea, China, and Japan and
ound ha hey ha e a s ong in e dependence wi h global geopoli ical isks. They also
abide by he ecen findings o Lee (2024) who by employing a TVP-VAR model has
s udied he impac o geopoli ical isk om No h Ko ea on he s ock ma ke linkages
o No heas Asia, namely Sou h Ko ea, China, and Japan. Wha is also impo an ,
because i is also ela ed o he discussion we made in Sec ion 3, i was ound ha No h
Ko ea’s nuclea h ea s nega i ely affec ed Sou h Ko ean and Japanese s ock ma ke s
espec i ely. In he same ein, Yilmazkuday (2024) in es iga es he effec s o global
geopoli ical isk on s ock p ices o 29 economies and finds ha a posi i e uni shock o
global geopoli ical isk educes s ock p ices.
Mo eo e , Demi and Danisman (2021) ha e ound ha geopoli ical unce ain y
should be blamed o significan ly in e io impac s on bank pe o mance han
economic policy unce ain y in 19 coun ies. I ano ski and Hailema iam (2022) on
hei pa , a gue o a posi i e impac o geopoli ical isk on oil ma ke alues ac oss
16 coun ies. This is consis en wi h he findings o ea lie s udies as hose pe o med
by An onakakis e al. (2017), Su e al. (2020) and Ozcelebi and Tokmakcioglu (2022).
Yilanci and Kilci (2021) on hei pa de ec no causal linkages s emming om
geopoli ical isk owa d he ma ke s o p ecious me als, while Huang, Suleman and
Zhang (2023), in a simila s udy use a nonpa ame ic causali y-in-quan iles app oach,
in es iga ing he causal ela ionship be ween he gold ma ke and geopoli ical isks,
using high- equency da a. They e eal ha geopoli ical isks affec ed ola ili y
a he han e u ns in he gold ma ke .
Impac s o Geopoli ical Risk 61
Finally,ina ecen esea cho Ngo,VanNguyenandHoang(2024)whoexplo ed he
influence o geopoli ical isks on na ional ese es and esou ce managemen s a egies
ac oss 108 coun ies om 1990 o 2021, i is demons a ed ha geopoli ical isks ad e sely
influence a coun y’s abili y o accumula e o al ese es ela i e o i s ex e nal deb .
This u he indica es conside able challenges in esou ce managemen amid geopo-
li ical ins abili y.
2.2 The Nexus Be ween GPR, Money and Infla ion
Rega ding he mo e specific ela ionship be ween geopoli ical isk, money and infla-
ion, Iyke, Phan and Na ayan (2022) suppo ha geopoli ical unce ain y is influen ial
o in e na ional cu ency alues. Aisen and Veiga (2008) simila ly a gue ha high
geopoli ical ins abili y can cause highe infla ion. Aysan e al. (2019) using he BSGVAR
echnique illus a e ha GPR has p edic i e powe on bo h he e u ns and ola ili y
o Bi coin. Al Mamun e al. (2020) find ha Bi coin in es o s can only hedge hei
po olio wi h gold, no wi h o he financial asse s and conclude ha he effec o
geopoli ical isk, global and US economic policy unce ain y is a mo e significan
du ing un a o able economic condi ions.
Adeosun e al. (2022) on hei pa s udy he in e ac ion o economic policy
unce ain y, GPR, and infla ion in USA, Canada, he UK, Japan, and China and e eal
ha when infla ion inc eases excessi ely, i causes inefficiencies, dampens socie y’s
wel a e, and igge s geopoli ical ensions. Colon e al. (2021) display ha he c yp-
ocu ency ma ke can se e as a s ong hedge agains geopoli ical isks in mos
cases, bu i could be conside ed a weak hedge and sa e ha en agains economic
policy unce ain y du ing a bull ma ke .
Addi ionally, Calda a e al. (2024) on hei pa employ da a o a la ge panel o
coun ies o quan i y he ela ionship be ween infla ion and geopoli ical ensions and
mainly show ha geopoli ical isks o eshadow high infla ion, wi h he in ensi y o his
effec diffe ing ac oss coun ies and his o ical pe iods. By he same easoning, Ky iazis
and Economou (2022) in hei s udy also es ima e ha he Tu kish geopoli ical unce -
ain y displays significan linkages wi h fluc ua ions in he Tu kish li a alues agains
o he cu encies and so affec s he Tu kish economy du ing he E doğan adminis a ion
e a as a whole. Mansou -Ich akieh and Zeai e (2019) show ha in some cases, when he
geopoli ical isk inc eases in one coun y (in hei case, Russia), his may gene a e highe
financial s abili y in ano he coun y (in Tu key acco ding o hei s udy). Simila
findings o he abo e esea ch ha e been ound in he s udy o Economou and Ky iazis
(2022). In addi ion, Bou i, Gup a and Vo (2022) examine how Bi coin and o he leading
c yp ocu encies a e affec ed by he geopoli cal isks. Using a da ase ha co e s he
pe iod 30 Ap il 2013 o 31 Oc obe 2019, hey de ec ha he p ice beha iou o all
62 N. A. Ky iazis and E. M. L. Economou
c yp ocu encies examined is jumpy bu only Bi coin jumps a e dependen on jumps in
he geopoli ical isk index. Thei findings complemen p e ious s udies which suppo
ha Bi coin is a hedge agains geopoli ical isk. Bou i, Gkillas and Gup a (2020) illus a e
ha geopoli ical e en s can push go e nmen s o adop c yp ocu encies as a ool o
ci cum en ing sanc ions o o conduc ing in e na ional ade.
Fang, Tang and Wang (2024) on hei pa , by empi ically es ing he dynamic isk
pe o mance o c yp ocu ency asse s unde geopoli ical isk e en s, and examining
whe he hey ha e sa e-ha en p ope ies in he ace o majo global ex e nal shocks,
p o ide e idence ha he ola ili y o c yp ocu encies should no be unde es ima ed
when in es o s conside hedging s a egies unde ex e nal shocks. Finally, Saka iyahu
e al. (2024) examined he impac o unce ain y and sen imen ac o s on p ice
beha iou o c yp ocu encies and es ima e ha economic and poli ical unce ain y
ac o s significan ly d i e c yp o p ices.
1
2.3 GPR, he Russo-Uk ainian Wa and Thei Impac on Digi al
Cu encies
Abakah e al. (2023) a gue ha geopoli ical e en s such as he Russo-Uk anian Wa can
c ea e ea among in es o s due o ma ke sen imen , leading o panic sales and hus
sha p educ ions in c yp ocu ency e u ns. Mo eo e , acco ding o Singh, Bansal
and Bha dwaj (2022), he Russo-Uk ainian conflic con on a ion had a eal impac on
financial ma ke s. They ace bo h long and sho - e m mu ual dependence be ween
economic policy unce ain y (EPU), GPR, and Bi coin e u ns and hei findings show
ha Bi coin could be linked o u u e unce ain ies ineconomies, hus p esen ing isk in
e ms o he cu ency being used as a sa e-ha en in es men . In a simila s udy, Kamal
and Wahls øm (2023), examine he eac ions o he c yp ocu ency ma ke o wo
e en s ha occu ed du ing he escala ion o he Russo-Uk ainian Wa in Feb ua y
2022 and e eal ha he escala ion exe ed a nega i e influence on bo h liquidi y and
e u ns.
In he same ein, Hossain, Al Masum and Saadi (2024) s udy he connec ion
be ween geopoli ical isks and o eign exchange ma ke s using he Russo-Uk ainian
conflic , and suppo ha due o in ensified geopoli ical isks, he conflic had a
nega i e effec on o eign exchange a es. Noui and Hamida (2023) find ha he nexus
be ween unce ain y and bi coin ola ili y changes acco ding o diffe en ac o s and
1One has also o bea in mind ha geopoli ical isks may be u he inc eased because o he
nega i e consequence o e o is a acks on financial ma ke s (see Kollias, Papadamou and S ag-
iannis 2011 on his). Howe e , a u he analysis ha links e o is a acks and financial ma ke s
exceeds he pu pose o ou s udy.
Impac s o Geopoli ical Risk 63
ha US unce ain y has sho un effec s on Bi coin ola ili y, while China’s unce -
ain y has a he long un effec s. Simila findings ha e also been eached by he
ecen s udies o Shamima e al. (2023), Tiwa i e al. (2024) and Khal aoui, Gozgo , and
Goodell (2024).
3 Main Inciden s ha Affec ed he Geopoli ical
Risk a he Global Le el Du ing he 2021–2024
Pe iod
Figu e 1 displays he Geopoli ical Risk a he global le el (Global GPR) as ex ac ed by
he Calda a and Iaco iello Index o he Sep embe 2021 o Augus 2024 pe iod o
ime. The Calda a and Iaco iello (2022) GPR index eflec s au oma ed ex -sea ch
esul s o he elec onic a chi es o 10 newspape s: Chicago T ibune, he Daily
Teleg aph, Financial Times, The Globe and Mail, The Gua dian, he Los Angeles
Times, The New Yo k Times, USA Today, The Wall S ee Jou nal, and The Wash-
ing on Pos .
A cau ious obse a ion o Figu e 1 displays a se ies o fluc ua ions in he global
GPR as depic ed by a se ies o spikes. Among hem, h ee la ge spikes a e obse ed,
which appea o ha e a mo e in ense impac on global GPR. The fi s one is obse ed
du ing he end o 2021 and he s a o 2022. The second is obse ed du ing he las
mon hs o 2023 and he las one du ing he sp ing o 2024.
Figu e 1: Global GPR based on Calda a and Iaco iello (2022). Sou ce: h ps://www.policyunce ain y.
com/gp .h ml.
64 N. A. Ky iazis and E. M. L. Economou
Figu e 2 displays he ime e olu ion o GPR and DeFi alues. Geopoli ical isk
p esen s i s highes le els a he onse o he Russia-Uk aine conflic in ea ly 2022.
No ably, he la ge majo i y o he digi al cu encies illus a e bea endencies du ing
he wa and he high infla iona y p essu es while some o hem sligh ly ebound
in he summe o 2024. In e es ingly, Loop ing displays a la ge inc ease in p ices
when he wa begins and dec eases he ea e .
Table 1 p o ides he desc ip i e s a is ics o he global geopoli ical isk and each o
he ele en DeFi asse s conside ed. GPR is ex emely uns able and his is mo e e iden a
heou b eako heRussia-Uk aineconflic . I is ob ious ha Sushiswap (1.47) is he mos
p ofi able DeFi in es men and Syn he ix (0.757) and Compound (0.735) ollow while
Make (0.161) is he leas p ofi able digi al asse on a e age bu displays pe iods o ab up
ises in pe o mance. Sushiswap (2,799.567) is also he mos ola ile asse s whe eas
Make (44.094) displays he weakes fluc ua ions and is conside ed o be he sa es
in es men . All DeFi asse s a e demons a ed obeposi i elyskewedandlep oku ic.
Non-no mali y in all a iables is co obo a ed by he Ja que–Be a es . The ERS es
displays ha he majo i y o a iables a e s a iona y in loga i hmic diffe ences.
The me hodological amewo k employed o es ima ions wi h h ee inno a i e
specifica ions is he Quan ile Vec o Au o eg ession (QVAR) app oach as in Ky iazis
e al. (2024) is p esen ed in (1):
y =μ( )+∑
p
j=1
Φj(τ)y −j+u (τ)(1)
whe e y
and y
−j
cons i u e k×1 dimensional endogenous a iable ec o s, τ akes
alues be ween ze o and uni y and s ands o he quan ile in es iga ed, p ep esen s
he lag leng h o he Quan ile-VAR model, μ(τ) is a condi ional mean ec o wi h k×1
dimensions, Φ
j
(τ) is he Q-VAR coefficien ma ix o k×kdimensions while u
(τ) is he
Figu e 2: Values o he geopoli ical isk and he DeFi asse s.
Impac s o Geopoli ical Risk 71
e o ec o o k×1 dimensions ea u ed by a a iance-co a iance ma ix o k×k
dimensions, deno ed as Σ(τ).
The spillo e impac ha an inno a ion in a iable icauses on a iable jis:
ψg
ij(H)=
Σ(τ)−1
ii ∑
H−1
h=0(e′
iΨh(τ)Σ(τ)ej)2
∑H−1
h=0(e′
iΨh(τ)Σ(τ)Ψh(τ)′ej)(2a)
˜
ψg
ij(H)=ψg
ij(H)
∑k
j=1φg
ij(H)(2b)
whe e e
i
is a ze o ec o aking he alue o 1 on he i h posi ion. This no maliza ion
leads o:
∑
k
j=1
˜
ψg
ij(H)=1 and ∑
k
l,j=1
˜
ψg
ij(H)=k
When i comes o he join di ec ional connec edness TO a iables, his is he join
effec gene a ed om a iable i owa ds he g oup o he emaining a iables j:
Cg
i→j(H)=∑
k
j=1,i≠j
˜
ψg
ji(H)(3)
Re e sely, he spillo e effec ha he g oup o he emaining a iables jcauses on
a iable iis he join di ec ional connec edness FROM o he s:
Table :Desc ip i e s a is ics o loga i hmic diffe ences o he GPR and each o he DeFi asse s.
Mean S dDe Skewness Ex.Ku osis JB ERS
GPR . ,. .*** .*** ,,*** −.***
Chainlink . . .*** .*** ,,*** −.***
Uniswap . . .*** .*** ,,*** −.
In e ne compu e . . .*** .*** ,,*** −.*
Aa e . . .*** .*** ,,*** −.***
Make . . .*** .*** ,,*** −.***
Syn he ix . . .*** ,.*** ,,*** −.*
Compound . . .*** ,.*** ,,*** −.**
×P o ocol . . .*** .*** ,,*** −.***
yea n.finance . . .*** ,.*** ,,*** −.**
Sushiswap . ,. .*** ,.*** ,,*** −.
Loop ing . . .*** .*** ,,*** −.***
No es: ***, ** and * display significance a %, %and %, espec i ely; Skewness: D’Agos ino () es ; Ku osis:
Anscombeand Glynn () es ; JB: Ja que and Be a () no mali y es ; ERS: S ock, Ellio , and Ro henbe g () uni - oo
es wi h cons an .
72 N. A. Ky iazis and E. M. L. Economou
Cg
i←j(H)=∑
k
j=1,i≠j
˜
ψg
ij(H)(4)
So hei diffe ence is he ne join connec edness om a iable i owa ds he g oup o
he emaining a iables j:
Cg
i(H)=Cg
i→j(H)−Cg
i←j(H)(5)
In addi ion, he adjus ed To al Connec edness Index (TCI) o Cha zian oniou, Gabaue
and S en o s(2021) akes alues be ween ze o and uni y o eflec ma ke sys emic isk.
Highe alues o TCI indica e s onge sys emic connec edness and highe ma ke isk
TCI(H)=∑k
i,j=1,i≠j
˜
ψg
ij(H)
k−1(6)
Es ima ions o dynamic linkages e eal how his nexus al e s o e ime and enable he
assessmen o he spillo e impac s ha GPR gene a es on he ma ke s o DeFi asse s o
he e e se. Pai wise, join and ne wo k examina ions pe mi a mul i-spec al analysis
and allow aluable insigh s in o how geopoli ical isk can influence he adop ion o
decen alized finance ehicles and he ansi ion o he cashless economy by he
adop ion o al e na i es o adi ional fia cu encies. The e o e, he de ec ion and
measu emen o difficul ly-disce nible connec edness could p o ide a compass o
examining he impac s o GPR on mone a y economics and mac o-finance.
5 Econome ic Resul s
Econome ic es ima ions a e conduc ed by he Quan ile-VAR me hodology a he lowe
(5 h), middle (50 h) and uppe (95 h) quan iles by a 30-day olling window and 10-day
o ecas ho izon. The lowe quan ile ep esen s low geopoli ical isk and bea DeFi
ma ke s, he middle quan ile s ands o no mal GPR and middle alues o he e u n
dis ibu ions o DeFi e u ns while he uppe quan ile eflec s ele a ed geopoli ical
unce ain y and bull DeFi ma ke s. Ou comes a e gene a ed by he ne pai wise
di ec ional connec edness o examine dynamic ela ion in pai s o GPR and sepa a e
DeFi asse s bu also by he ne ex ended join connec edness o es ima e how and by
which ex en he GPR is join ly connec ed wi h he g oup o DeFi cu encies and o
be e disce n i s impac s on sys emic isk. Mo eo e , he ne wo k connec edness
ou comes e eal whe he and by which magni ude he GPR o specificDeFiasse s
se e as sou ces o ecei e s o spillo e impac s om each o he emaining con-
s i uen s o he sys em.
Impac s o Geopoli ical Risk 73
5.1 Ne Pai wise Di ec ional Connec edness
Figu es 3a–3c p esen he ne pai wise di ec ional connec edness a he lowe ,
middle and uppe quan iles, espec i ely. The e ical axis shows he le el o ne
pai wise di ec ional connec edness while he ho izon al axis displays he ime. I is
ob ious ha geopoli ical isk is weakly o modes ly linked wi h each o he DeFi
asse s conside ed a he lowe quan ile. Thei connec ion p esen s spikes a he onse
o he Russia-Uk aine conflic (ea ly 2022) and his is epea ed when new in ense wa
episodes appea in middle 2023. On a e age, hese spikes do no exceed he le el o 50
while in gene al he ela ion is less han 40 in he emaining pe iod. Rema kably,
hese linkages become igh e since mid-2024 e en hough no p esence o la ge spikes
can be ound. The eme gence o in ense Middle-Eas e n conflic s combined wi h he
al eady accumula ed geopoli ical unce ain y and infla iona y p essu es ende he
GPR influen ial on decen alized digi al ma ke s in a mo e pe manen basis.
Con a y o wha could be expec ed, examina ion a he middle quan ile (Figu e 3b)
does no b ing abou significan dec eases in he connec edness be ween GPR and each
o he DeFi ma ke s. The linkages be ween GPR and each o he cons i uen s o he DeFi
g oup a e weak bu a non-negligible numbe o upwa ds o downwa ds spikes in he
ne pai wise connec edness a e ound. This indica es ha e en in no mal condi ions,
geopoli ical ensions in e ac wi h mode n financial ma ke s and shocks in he o me
could esul in spillo e s on he la e o he e e se. The majo i y o DeFi asse s a e
shown o be influenced by he GPR by mo e han 40 a se e al poin s o ime.
As conce ns he uppe quan ile (Figu e 3c), lowe spikes bu significan ly mo e
sys ema ic and pe manen connec edness o geopoli ical ensions and each o he DeFi
asse s a e e ealed. The connec edness ha dly eaches he le el o 50 in mos cases bu
clea ly displays consis ency and does no ade ou . This indica es ha when geopo-
li ical s ess is high and al e na i e o ms o money and in es men a e p ofi able hen
he GPR plays a pi o al ole in he de elopmen o sophis ica ed decen alized digi al
asse s’ma ke s. This co obo a es he no ion ha geopoli ically-induced unce ain y
leads o ins abili y in he adi ional financial sys em and pa es he way o he
ansi ion o he new digi al financial ma ke s wi h bubbly in es men ehicles.
5.2 Ne Ex ended Join Connec edness
Es ima ions o he ne ex ended join connec edness be ween he GPR and he g oup
o DeFi asse s a he lowe , middle and uppe quan iles a e displayed in Figu e 4 and
demons a e in e es ing findings.
In e ms o highe p ecision, he lowe quan ile (Figu e 4a), which ep esen s low
geopoli ical isk and bea DeFi ma ke s, is ound o be e y s ongly influen ial on digi al
74 N. A. Ky iazis and E. M. L. Economou
Figu e 3a: Ne pai wise di ec ional connec edness be ween he GPR and each o he DeFi asse s a he
lowe (5 h) quan ile. No e: The name on each g aph deno es he pai o a iable whose ne pai wise
di ec ional ela ion is examined. The e ical axis illus a es he le el o ne pai wise di ec ional
connec edness and he ho izon al axis shows he ime. A eas wi h a posi i e sign in o m ha he GPR is a ne
gene a o o pai wise di ec ional connec edness o he espec i e DeFi asse while a eas wi h a nega i e sign
in o m ha heGPRisane ecei e om heDeFiasse .
Impac s o Geopoli ical Risk 75
Figu e 3b: Ne pai wise di ec ional connec edness be ween he GPR and each o he DeFi asse s a he
middle (50 h) quan ile. No e: The name on each g aph deno es he pai o a iable whose ne pai wise
di ec ional ela ion is examined. The e ical axis illus a es he le el o ne pai wise di ec ional connec edness
and he ho izon al axis shows he ime. A eas wi h a posi i e sign in o m ha he GPR is a ne gene a o o
pai wise di ec ional connec edness o he espec i e DeFi asse while a eas wi h a nega i e sign in o m ha
heGPRisane ecei e om heDeFiasse .
76 N. A. Ky iazis and E. M. L. Economou
Figu e 3c: Ne pai wise di ec ional connec edness be ween he GPR and each o he DeFi asse s a he
middle (95 h) quan ile. No e: The name on each g aph deno es he pai o a iable whose ne pai wise
di ec ional ela ion is examined. The e ical axis illus a es he le el o ne pai wise di ec ional
connec edness and he ho izon al axis shows he ime. A eas wi h a posi i e sign in o m ha he GPR is a
ne gene a o o pai wise di ec ional connec edness o he espec i e DeFi asse while a eas wi h a
nega i e sign in o m ha he GPR is a ne ecei e om he DeFi asse .
Impac s o Geopoli ical Risk 77
in es men s jus a e he onse o he Russia-Uk aine conflic . This o ifies he no ion
ha wa -induced unce ain y is o majo impo ance o ma ke s o inno a i e digi al
o ms o money and in es men and he unan icipa ed shock o new geopoli ical c ises
cons i u es a d i e o e olu ion conce ning he ansi ion o a new cashless digi al
economy. GPR also p o es o affec DeFi asse s in la e phases o he wa (ea ly 2023)
and his p obably wo ks h ough he signaling and confidence channels o economic
policymaking by educing he op imis ic sen imen and consequen ly he willingness o
consume s and in es o s o hold na ional cu encies.
No ably, geopoli ical isk p esen s conside able impac s on he DeFi asse s du ing he
sp ing and he summe o 2024 and his e eals how accumula ed infla iona y p essu es
in andem wi h ele a ed geopoli ical isk can o m a pe iod o pe sis en GPR effec s on
he ma ke s o decen alized digi al cu encies. This nou ishes he belie ha when he
GPR epea edly affec s he economy bo h di ec ly and indi ec ly – ia he inc eases o
p ice le els h ough he supply chain channel – he connec ion o geopoli ical isk and
mode n financial ma ke s becomes s onge and ends o be pe manen .
Examina ion a he middle quan ile (Figu e4b) indica es ha no mal le els o GPR
and middle alues in he dis ibu ions o he DeFi e u ns display weak connec edness.
This ela ionship hough s eng hens as ime e ol es and wa episodes along wi h
infla ion accumula e he bu den o financial ma ke s. The eby, he combina ion o
he Russia-Uk aine wa episodes and he Middle Eas conflic s (in la e 2023 and 2024)
Figu e 4a: Ne ex ended join connec edness be ween he geopoli ical isk index and he g oup o DeFi
asse s a he lowe (5 h) quan ile. No e: The name on each g aph indica es he quan ile a which he GPR
is examined ega ding i s join connec edness wi h he g oup o he DeFi asse s, he e ical axis e eals
he le el o ne ex ended join connec edness and he ho izon al axis s ands o he ime. A eas wi h a
posi i e sign show ha he GPR cons i u es a ne sou ce o ex endedjoin connec edness o he g oup o
he DeFi asse s while a eas wi h a nega i e sign mean ha he GPR is a ne ecei e om he g oup.
78 N. A. Ky iazis and E. M. L. Economou
esul s in o he GPR being impac ul on digi al cu ency ma ke s who could se e as a
shield om he menace o infla ion ha bo h hese wa s b ing abou .
In iguingly, esul s a he uppe quan ile (Figu e 4c) e eal subs an ially s onge
connec edness be ween GPR and he DeFi asse s han a he lowe and he middle
quan iles. I is wo h emphasizing ha his connec ion emains powe ul du ing all he
wa pe iod examined. This ela ion becomes s onge when new wa episodes eme ge
in ea ly 2023 as his lowe s he confidence o consume s and in es o s in fia na ional
money holdings bu does no ac a o ably o digi al cu encies ei he . This happens
because he la e a e conside ed o be oo isky o in es in imes o so ele a ed
geopoli ical and mone a y unce ain y. No ably hough, he dynamic linkages be ween
he GPR and he DeFi asse s ende s ong and pe sis en a he same ime since ea ly
2024 and con inue his way un il he ea ly au umn o 2024. This is combined wi h he
amelio a ion o pe o mance in he majo i y o he DeFi asse s and especially
ega ding he Make , 0×P o ocol. Chainlink and Uniswap which cons i u e he leading
ehicles o he DeFi popula i y in in es o p e e ences. E en hough he pe o mance
o he DeFi dec eases la e in 2024, he connec ion wi h he GPR du ing ele a ed
geopoli ical isk and bull DeFi ma ke s emains s ong. This se s he basis o u he
geopoli ical and infla iona y impac ul spillo e s on he o ma ion o a solid clien ele
o in es men s in he o m o decen alized finance.
Figu e 4b: Ne ex ended join connec edness be ween he Geopoli ical Risk Index and he g oup o
DeFi asse s a he middle (50 h) quan ile No e: The name on each g aph indica es he quan ile a which
he GPR is examined ega ding i s join connec edness wi h he g oupo he DeFi asse s The e ical axis
e eals he le el o ne ex ended join connec edness and he ho izon al axis s ands o he ime. A eas
wi h a posi i e sign show ha he GPR cons i u es a ne sou ce o ex ended join connec edness o he
g oup o he DeFi asse s while a eas wi h a nega i e sign mean ha he GPR is a ne ecei e om he
g oup.
Impac s o Geopoli ical Risk 79
Geopoli ical s ess and na ional cu ency de alua ion when combined se e as a
ca alys o he abili y o he DeFi asse s o c owd ou – om he pe cep ions o economic
agen s-na ional cu encies as he only accep able means o money and in es men s.
The eby, geopoli ical ensions and mone a y ins abili y wo k o ueling he ansi ion o
he cashless digi al economy whe e decen alized digi al cu ency would be he means
o shel e ing om ex e nal shocks and weal h loss.
5.3 Ne wo k Connec edness
The dynamic in e linkages be ween he GPR and he g oup o DeFi cons i uen s a e
also examined by he ne wo k connec edness specifica ion. Figu e 5a p esen s es i-
ma ions a he lowe quan ile. I is demons a ed ha nine ou o he ele en DeFi
asse s examined unc ion as ne sou ces o spillo e impac s. No ably, geopoli ical
isk ails o se e as a ne con ibu o o impac s o any o he DeFi asse s. Mo eo e , i
is ob ious ha he DeFi asse s a e no ela ed wi h each o he by a conside able
ex en .
Connec edness a he middle quan ile (Figu e 5b) displays ha nine ou o ele en
DeFi cu encies wo k as ne con ibu o s o spillo e s and GPR is clea ly a ne
ecei e o impac s. The Make and Syn he ix cu encies a e he ne ecei e s o
spillo e s, in con as wi h he lowe quan ile whe e Uniswap and Aa e we e he ne
Figu e 4c: Ne ex ended join connec edness be ween he Geopoli ical Risk Index and he g oup o DeFi
asse s a he uppe (95 h) quan ile No e: The name oneach g aph indica es he quan ile a which he GPR is
examined ega ding i s join connec edness wi h he g oup o he DeFi asse s The e ical axis e eals he
le el o ne ex ended join connec edness and he ho izon al axis s ands o he ime. A eas wi h a posi i e
sign show ha he GPR cons i u es a ne sou ce o ex ended join connec edness o he g oup o he DeFi
asse s while a eas wi h a nega i e sign mean ha he GPR is a ne ecei e om he g oup.
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