Price co-movements in decentralized financial markets

Seongwan Park, Seungju Lee, Yunyoung Lee, Hyungjin Ko, Bumho Son, Jaewook Lee and Huisu Jang

Applied Economics Letters, 2023, vol. 30, issue 21, 3075-3082

Abstract: In decentralized finance (Defi), market participants are allowed to have the right to manage their own funds as opposed to centralized finance (Cefi) with a central custodian, centralized exchanges (CEX). Most Defi projects provide their own service and simultaneously issue a unique token that can be traded in decentralized exchanges (DEX). However, the values of these tokens have rarely been studied. We confirm that the prices of tokens in the Defi market have a persistent tendency to move together. We also demonstrate that the correlation gradually increased from the Defi market’s inception and the price co-movement increased in a bear market, and conversely, decreased in a bull market. Specifically, we find a notable difference in the level of price co-movement between CEX cryptocurrencies and DEX tokens.

Date: 2023
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DOI: 10.1080/13504851.2022.2120952

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