What Drives Liquidity on Decentralized Exchanges? Evidence from the Uniswap Protocol
We study liquidity on decentralized exchanges (DEXs), identifying factors at the platform, blockchain, token pair, and liquidity pool levels with predictive power for market depth metrics. We introduce the v2 counterfactual spread metric, a novel criterion which assesses the degree of liquidity concentration in pools using the ``concentrated liquidity'' mechanism, allowing us to decompose the effect of a factor on market depth into two channels: total value locked (TVL) and concentration. We further explore how external liquidity from competing DEXs and private inventory on DEX aggregators influence market depth. We find that (i) gas prices, returns, and a DEX's share of trading volume affect liquidity through concentration, (ii) internalization of order flow by private market makers affects TVL but not the overall market depth, and (iii) volatility, fee revenue, and markout affect liquidity through both channels.
Code (0)
등록된 구현이 없습니다.
Tasks
counterfactualSimilar Papers 제목 키워드 기반
Generalizing Impermanent Loss on Decentralized Exchanges with Constant Function Market Makers
Liquidity providers are essential for the function of decentralized exchanges to ensure liquidity takers can be guaranteed a counterparty for their trades. However, liquidity providers investing in liquidity pools face m…
Blockchain scaling and liquidity concentration on decentralized exchanges
Liquidity providers (LPs) on decentralized exchanges (DEXs) can protect themselves from adverse selection risk by updating their positions more frequently. However, repositioning is costly, because LPs have to pay gas fe…
The Paradox Of Just-in-Time Liquidity in Decentralized Exchanges: More Providers Can Sometimes Mean Less Liquidity
We study Just-in-time (JIT) liquidity provision in blockchain-based decentralized exchanges. A JIT liquidity provider (LP) monitors pending swap orders in public mempools of blockchains to sandwich orders of their choice…
Liquidity provision of utility indifference type in decentralized exchanges
We present a mathematical formulation of liquidity provision in decentralized exchanges. We focus on constant function market makers of utility indifference type, which include constant product market makers with concent…
Behavior of Liquidity Providers in Decentralized Exchanges
Decentralized exchanges (DEXes) have introduced an innovative trading mechanism, where it is not necessary to match buy-orders and sell-orders to execute a trade. DEXes execute each trade individually, and the exchange r…