Modeling the Dynamics of Decentralized Finance (DeFi)-Based Crowdfunding Systems to Support Startups

Abstract

The present study aimed to identify the factors influencing crowdfunding systems in the DeFi environment and to develop a system dynamics model for supporting startup businesses. In terms of purpose, this study is applied-developmental, and in terms of nature, it is exploratory. Using the system dynamics approach and documentary modeling methodology, the key factors affecting the success of crowdfunding in the DeFi environment were first identified through a systematic review of the literature (42 validated sources). Subsequently, by analyzing the causal relationships and feedback loops among these factors, causal loop diagrams and stock-and-flow diagrams were designed. For model validation, data from 150 projects and 15 active platforms in this field were utilized. The influential factors were categorized into five main groups, including project-related factors (proposal quality, executive team, tokenomics), platform-related factors (system quality, transparency, security, governance mechanisms), investor-related factors (trust, experience, herd behavior, risk tolerance), institutional factors (regulatory quality, institutional trust, governmental support), and macroeconomic factors (economic competitiveness, macroeconomic stability, technological penetration). Key feedback loops, such as the “trust and participation loop,” the “success and project attraction loop,” and the “investor learning and maturity loop,” were identified within the model. Mechanisms such as milestone-based financing, liquidity pools, and decentralized autonomous organization (DAO) governance were incorporated as major structural elements of the DeFi model. The proposed model can contribute to a deeper understanding of the complex dynamics underlying decentralized crowdfunding systems. Simulation results under different scenarios indicate that platforms utilizing milestone-based financing and decentralized governance mechanisms increase project success rates by up to 41%. Furthermore, the interactive effect of transparency and investor participation in platform governance demonstrated the strongest impact on long-term capital accumulation.