Management Science· 2026Q1
On the Quality of Cryptocurrency Markets: Centralized vs. Decentralized Exchanges
- 95citations
- Q1SCImago
- 2026year
Short summary
Decentralized exchanges (DEXs) suffer from persistent arbitrage deviations and higher costs for small trades due to fixed gas fees, while offering competitive costs for larger trades, unlike centralized exchanges.
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Key points
- Fixed gas fees on DEXs create significant cost burdens for small trades.
- DEXs exhibit persistent deviations from the no-arbitrage condition due to gas fees.
- DEXs offer more competitive transaction costs for larger trades compared to centralized exchanges.
- Improvements in DEX liquidity provision mechanisms causally enhance market quality.
AI-generated from the title and abstract; the full text is not read.
Abstract
We analyze the market quality of centralized crypto exchanges and decentralized blockchain-based venues (DEXs) using a unique and comprehensive data set. Focusing on two fundamental aspects, transaction costs and deviations from the no-arbitrage condition, we estimate the causal effect of gas fees on DEX market quality. We show that these fixed costs impose a significant burden on relatively small trades and cause persistent arbitrage deviations. Conversely, DEXs offer more competitive transaction costs for larger trades, offering a more favorable environment for institutional investors. Furthermore, we provide causal evidence that innovations aimed at enhancing the flexibility of liquidity provision in DEX markets lead to sizeable improvements in market quality. This paper was accepted by Agostino Capponi, finance. Funding: A. Ranaldo acknowledges financial support from the Swiss National Science Foundation nccr–on the move [Grant 204721]. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2024.07703 .
The authors' abstract, as published at the source. Management Science, 2026 · DOI ↗
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Field: Finance
FinanceEconomics, Econometrics and Finance