On The Quality Of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges
Journal
SSRN Electronic Journal
ISSN
1556-5068
Type
working paper
Date Issued
2024-04-12
Author(s)
Abstract
We analyze the market quality of centralized crypto exchanges (CEXs) and decentralized blockchain-based venues (DEXs) using a unique and comprehensive dataset. Focusing on two fundamental aspects, transaction costs and deviations from the no-arbitrage condition, we estimate the causal effect of "gas fees" on DEX market quality. We show that these fixed costs impose a significant burden on relatively small trades and cause persistent arbitrage deviations. Conversely, DEXs offer more competitive transaction costs for larger trades, offering a more favorable environment for institutional investors. Furthermore, we provide causal evidence that innovations aimed at enhancing the flexibility of liquidity provision in DEX markets lead to sizeable improvements in market quality.
Language
English (United States)
Keywords
Market Quality
Decentralized Exchanges
Automated Market Making
Blockchain
Decentralized Finance
Limit Order Book
Uniswap
Publisher
Elsevier BV
File(s)![Thumbnail Image]()
open.access
Name
ssrn-3984897.pdf
Size
1.4 MB
Format
Adobe PDF
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