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On The Quality Of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges


  • Andrea Barbon

    (University of St. Gallen)

  • Angelo Ranaldo

    (University of St. Gallen)


Despite the growing adoption of decentralized exchanges, little is known about their market quality. Using a comprehensive dataset, we compare decentralized blockchain-based venues (DEXs) to centralized crypto exchanges (CEXs) assessing two aspects of market quality: price efficiency and market liquidity. We find that CEXs provide better market quality and identify the main friction dampening DEX efficiency as the high gas price stemming from proof-of-work blockchains. We propose and empirically validate a stylized model of DEX liquidity provision, linking trading volume, protocol fees, and liquidity. We identify quantitative conditions needed for DEXs to overtake CEXs in the future.

Suggested Citation

  • Andrea Barbon & Angelo Ranaldo, 2022. "On The Quality Of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges," Swiss Finance Institute Research Paper Series 22-38, Swiss Finance Institute.
  • Handle: RePEc:chf:rpseri:rp2238

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    References listed on IDEAS

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    More about this item


    Decentralized Exchanges; Automated Market Making; Blockchain; Decentralized Finance; Market Quality; Limit Order Book;
    All these keywords.

    JEL classification:

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

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