On the Quality of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges
Type
conference paper
Date Issued
2023-07-18
Author(s)
Abstract
We compare the market quality of centralized crypto exchanges (CEXs) such as Binance and Kraken to decentralized blockchain-based venues (DEXs) such as Uniswap v2 and v3.
After discussing the microstructure of such exchanges, we analyze two key aspects of market quality: transaction costs and deviations from the no-arbitrage condition.
We find that CEXs and DEXs operate on roughly equal footing in terms of transaction costs, particularly in light of recent innovations in DEX protocols.
Moreover, while CEXs provide superior price efficiency, DEXs eliminate custodian risk.
These complementary advantages may explain why both market structures coexist.
After discussing the microstructure of such exchanges, we analyze two key aspects of market quality: transaction costs and deviations from the no-arbitrage condition.
We find that CEXs and DEXs operate on roughly equal footing in terms of transaction costs, particularly in light of recent innovations in DEX protocols.
Moreover, while CEXs provide superior price efficiency, DEXs eliminate custodian risk.
These complementary advantages may explain why both market structures coexist.
Language
English
HSG Classification
contribution to scientific community
HSG Profile Area
SOF - System-wide Risk in the Financial System
Event Title
European Finance Association 50th Annual Meeting
Event Location
Amsterdam
Event Date
16. - 19. August 2023
Subject(s)
Division(s)
Eprints ID
267182