CBER Forum – March,10 2022 – The Adoption of Blockchain-Based Decentralized Exchanges

Chair Event

The Adoption of Blockchain-Based Decentralized Exchanges

We investigate the market microstructure of Automated Market Makers (AMMs), the most prominent type of blockchain-based decentralized exchanges. We show that the order execution mechanism yields token value loss for liquidity providers if token exchange rates are volatile. AMMs are adopted only if their token pairs are highly correlated, or of high personal use for investors. A pricing curve with higher curvature makes the arbitrage problem less severe but also decreases investors’ surplus. Pooling multiple tokens exacerbates the arbitrage problem. We provide statistical support for our main model implications using transaction-level data of AMMs.

About Agostino Capponi
Associate Professor @Columbia University
Agostino Capponi is an Associate Professor of Industrial Engineering and Operations Research at Columbia University and a member of the Data Science Institute and the FDT Center for Intelligent Asset Management. His research has been published in major journals of his field, including Journal of Political Economy, Journal of Monetary Economics, Review of Asset Pricing Studies, Journal of Financial and Quantitative Analysis, Management Science, Operations Research, and Mathematical Finance. He is a fellow of the Crypto and Blockchain Economic Research Forum, an academic fellow of the Luohoan Academy established by the Alibaba Group, and external research fellow at the Fintech@Cornell Center.

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