On The Quality Of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges

Andrea Barbon and Angelo Ranaldo

Papers from arXiv.org

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.

Date: 2021-12, Revised 2024-09
New Economics Papers: this item is included in nep-mst and nep-pay
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Citations: View citations in EconPapers (4)

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Working Paper: On The Quality Of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges (2022)
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