Decentralized exchanges: The “wild west” of cryptocurrency trading

Angelo Aspris, Sean Foley, Jiri Svec, Leqi Wang

Research output: Contribution to journalArticlepeer-review

66 Citations (Scopus)
247 Downloads (Pure)

Abstract

Cryptocurrencies are traded on two types of exchanges – centralized and decentralized. Although trading in the largest cryptocurrencies primarily occurs on centralized exchanges, most newly issued tokens can only be exchanged using decentralized platforms. Volumes in these decentralized exchanges (including automated market makers) has recently increased exponentially. We examine the role of this new and unmonitored market, utilizing an extensive sample of tokens exclusively traded on decentralized platforms. We show significant differences in the listing and trading characteristics of these tokens relative to their centralized equivalents. A small selection of these tokens obtain listing on a centralized exchange during the sample period, which is accompanied by a significant increase in trading activity, consistent with market segmentation. A centralized listing results in a migration of volume away from decentralized platforms, revealing a strong preference by tokenholders for deeper and more liquid markets over the increased security and anonymity offered by decentralized exchanges.

Original languageEnglish
Article number101845
Pages (from-to)1-10
Number of pages10
JournalInternational Review of Financial Analysis
Volume77
DOIs
Publication statusPublished - Oct 2021

Keywords

  • Cross-listing
  • Cryptocurrency
  • DeFi
  • Decentralized exchange
  • ICO
  • Tokens

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