Is Decentralized Always Better? How Market Structure Affects Trading Costs for Tokenized Assets
This paper analyzes transaction costs and liquidity differences between automated market makers and centralized exchanges for tokenized assets.
What it examines
This study compares digital asset trading in decentralized Automated Market Makers (AMMs) and traditional centralized exchanges (CEXs). Using transaction cost data and counterfactual simulations, the authors evaluate tokenized equities and cryptocurrencies to assess liquidity, efficiency, and market dynamics, aiming to improve understanding of trading costs.
What it concludes
The findings show that AMMs can offer lower transaction costs and support larger trades in volatile markets, while tokenized equities face liquidity challenges. Future research could expand these insights into traditional markets and help shape regulatory designs, enabling more innovative and efficient digital asset trading strategies.
Evidence objects
The study reveals that Automated Market Makers offer cost advantages by lowering effective spreads and transaction fees in deep liquidity conditions, contrasting traditional centralized exchanges higher costs despite pricing mechanisms.
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Researchers employed simulations, datasets, and regression models across tokenized equities and crypto assets, introducing clear definitions for liquidity provision, price impact, and cost gaps, uncovering a U-shaped cost-trade size trend.
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The research also highlights challenges with tokenized equities due to limited adoption and liquidity, alongside network fees potentially skewing AMM performance, raising concerns about accurately capturing dynamic, real-world market behavior.
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Offering rigorous analysis of trading costs in decentralized versus centralized systems, this paper pioneers a unique dataset and comparative approach focused on Automated Market Makers and tokenized equities. Its innovative methodology and fresh insights into DeFi market structures make it compelling for audiences seeking original perspectives and impactful, cost-efficiency analysis.
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Raw abstract and provenance
- … the first tokenized equity products achieved minimal market penetration relative to the size of their reference asset in their brief trading history. The equity tokens that we …
Source row: 1134 · abstract type: snippet