Nº 22-38: On The Quality of Cryptocurrency Markets: Centralized Versus Decentralized Exchanges

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.