Search Results
Discussion Paper
Can Decentralized Finance Provide More Protection for Crypto Investors?
Several centralized crypto entities failed in 2022, resulting in the cascading failure of other crypto firms and raising questions about the protection of crypto investors. While the total amount invested in the crypto sector remains small in the United States, more than 10 percent of all Americans are invested in cryptocurrencies. In this post, we examine whether migrating crypto activities from centralized platforms to decentralized finance (DeFi) protocols might afford investors better protection, especially in the absence of regulatory changes. We argue that while DeFi provides some ...
Journal Article
The Blockchain Revolution: Decoding Digital Currencies
Cryptocurrencies and decentralized finance have grown considerably since the publication of the white paper on bitcoin in 2009. This article presents an overview of cryptocurrencies, blockchain technology, and their applications, explaining the spirit of the enterprise and how it compares with traditional operations. We discuss money, digital money, and payments; cryptocurrencies, blockchain, and the double-spending problem of digital money; decentralized finance; and central bank digital currency.
Report
Information and Market Power in DeFi Intermediation
We investigate how private information shapes profit sharing in the DeFi intermediation chain, the market structure emerging from proof-of-stake blockchain technology on Ethereum. Leveraging a unique dataset that distinguishes private and public transactions, we find that a one percent increase in the value of private information leads to a 0.57 percent increase in block builders’ profit share, underscoring the role of information asymmetry in intermediated financial markets. We further develop a dynamic bargaining model that illustrates how private information confers market power to ...
Discussion Paper
The Origins of Market Power in DeFi
In our previous Liberty Street Economics post, we introduced the decentralized finance (DeFi) intermediation chain and explained how various players have emerged as key intermediaries in the Ethereum ecosystem. In this post, we summarize the empirical results in our new Staff Report that explains how the need for transaction privacy across the DeFi intermediation chain gives rise to intermediaries’ market power.