Uniswap and the rise of the decentralized exchange

Yuen Lo and Francesca Medda

MPRA Paper from University Library of Munich, Germany

Abstract: Despite blockchain based digital assets trading since 2009, there has been a functional gap between (1) on-chain transactions and (2) trust based centralized exchanges. This is now bridged with the success of Uniswap, a decentralized exchange. Uniswap's constant product automated market maker enables the trading of blockchain token without relying on market makers, bids or asks. This overturns centuries of practice in financial markets, and constitutes a building block of a new decentralized financial system. We apply ARDL and VAR methodologies to a dataset of 999 hours of Uniswap trading, and conclude that its simplicity enables liquidity providers and arbitrageurs to ensure the ratio of reserves match the trading pair price. We find that changes in Ether reserves Granger causes changes in USDT reserves.

Keywords: Uniswap; Decentralized exchange; Blockchain; Ethereum; Tokenomics (search for similar items in EconPapers)
JEL-codes: D47 D53 G14 O31 (search for similar items in EconPapers)
Date: 2020-11-03
New Economics Papers: this item is included in nep-ore and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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