Security-by-Governance in DeFi: A Simulation-Based Framework for Staggered Adoption, Tail Risk, and Network Spillovers

Decentralized finance (DeFi) aspires to trust-minimized operation, yet practical resilience depends on governance arrangements that shape assurance, disclosure incentives, incident response, and coordination across interdependent protocols. This study develops and demonstrates a simulation-based empirical framework for evaluating these mechanisms using a synthetic but internally consistent protocol-month panel calibrated to plausible DeFi security conditions (176 protocols over 48 months; 8,448 protocol-months; 612 simulated incidents; 289 tail exceedances above u = $5M). The framework combines staggered-adoption difference-in-differences designs, zero-inflated negative binomial count models, generalized Pareto tail models, time-varying hazards, and spatial/network panels. Within the simulated design, a +0.20 increase in the Audit Depth Index is associated with lower incident frequency (IRR = 0.82, 95% CI [0.75, 0.90]), while partial formal verification lowers the modeled hazard of first exploit (HR = 0.77, 95% CI [0.65, 0.92]). High-assurance configurations produce a thinner modeled loss tail (Δξ = -0.08; Δβ = -22%). Higher bug-bounty intensity increases simulated pre-disclosures (+31%) and is associated with lower incident frequency (IRR = 0.88). Insurance primarily improves modeled recovery rather than prevention, while emergency readiness and governance transparency accelerate containment and attenuate network spillovers. These findings should be interpreted as a methodological proof of concept, not as causal estimates from observed DeFi protocols. The framework provides a transparent basis for future validation with auditable protocol-level data.