Blockchain Currency Markets

Ganesh Viswanath-Natraj, Angelo Ranaldo, and Junxuan Wang

♦ We conduct the first comprehensive study of blockchain currencies—stablecoins pegged to fiat currencies and traded on decentralized exchanges. Using transaction-level data linked to wallet characteristics, we show that prices in these markets are generally efficient, though constrained by blockchain frictions such as gas fees and Ether volatility. Decentralized exchange rates closely track traditional currency markets through arbitrage and informed trading. Traders with substantial market share and access to primary markets exert greater price impact, reflecting informational advantages. While blockchain markets may improve access for customers excluded from traditional venues, their scalability depends on addressing frictions inherent to decentralized trading.

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