Decentralized Finance, Financial Inclusion, and Bank Stability in BRICS Plus Economies: Suggestive Evidence from a Thresh-old Analysis

The rapid diffusion of decentralized finance (DeFi) protocols across emerging economies raises two related policy questions: whether these platforms broaden access to financial services and whether their expansion affects incumbent commercial banks. Using an unbalanced panel of ten BRICS Plus economies (2015–2024), we estimate four complementary specifications — two-way fixed-effects (FE), system GMM, structural equation modelling (SEM) with mediation, and panel smooth transition regression (PSTR) — to investigate the DeFi–inclusion–stability nexus. Estimators yield mixed evidence on the DeFi–inclusion link: the FE and SEM specifications produce positive but non-significant coefficients, while the system GMM yields a small negative estimate once path dependence is absorbed. The direct association between DeFi adoption and non-performing loans is negative and robust across specifications once multicollinearity between the two Chainalysis indicators is remedied. The PSTR suggests a possible threshold on the Financial Inclusion Index at ĉ ≈ 0.641, with the DeFi–Z-score association switching from negative below the threshold to positive above it. However, we cannot reject the null hypothesis of linearity at conventional 5% significance, bootstrap confidence intervals for the regime slopes are wide and straddle zero, and alternative transition variables yield mixed results: log GDP per capita produces a sharper linearity test than the FII, whereas internet penetration does not. This mixed pattern suggests that the threshold reflects broader financial development rather than inclusion specifically, though the evidence is not uniform across all development proxies. Monte Carlo simulations confirm limited statistical power. The findings are therefore best interpreted as suggestive pattern evidence rather than definitive causal identification. The study contributes to the literature by providing the first application of a smooth-threshold frame-work to the enlarged BRICS Plus consortium, together with a comprehensive uncertainty characterization that includes bootstrap inference and Monte Carlo power analy-sis, and by offering tentative threshold-based reference values for macroprudential pol-icy calibration.