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On The Quality Of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges


  • Andrea Barbon
  • Angelo Ranaldo


We compare the market quality of decentralized blockchain-based venues (DEXs) to centralized crypto exchanges (CEXs). Our analysis of transaction costs and deviations from the no-arbitrage condition suggests that liquidity in CEXs and DEXs is similar but DEX prices are less efficient. While the main frictions for DEXs are high exchange fees and the gas cost of blockchain transactions, CEXs involve significant risks and latency associated with delegated custody. We propose and empirically validate a stylized model of DEX liquidity provision, linking volume, fees, and liquidity in equilibrium. Our theory identifies the quantitative conditions for DEXs to overtake CEXs.

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  • Andrea Barbon & Angelo Ranaldo, 2021. "On The Quality Of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges," Papers 2112.07386,, revised Oct 2022.
  • Handle: RePEc:arx:papers:2112.07386

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    References listed on IDEAS

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    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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