Market Structure of Blockchain and DeFi
Paper Session
Monday, Jan. 5, 2026 10:15 AM - 12:15 PM (EST)
- Will Cong, Cornell University
Market Power and the Bitcoin Protocol
Abstract
We document that blocks on the blockchain are rarely filled to capacity, even though there is excess demand for block space by fee-paying users who want their transactions to be recorded. In spite of this, higher fee orders are not always prioritized. We show these patterns are consistent with miners exercising market power: If users believe that only high fee transactions will be executed expeditiously we show how strategic capacity management can be used to extract higher fee revenue. Using a novel data set, we provide evidence consistent with this market power, and estimate that mining pools have extracted least 300 million USD a year in excess fees by making processing capacity artificially scarce.Demand for Safety in the Crypto Ecosystem
Abstract
We study the demand for safety within the crypto ecosystem, where investors cannot frictionlessly resort to traditional asset classes. To enter and exit, crypto investors pay substantial fees associated with deposits and withdrawals, while facing increasing scrutiny from regulators and tax authorities. These frictions lead investors to leave resources ``trapped" in the crypto ecosystem. This paper shows that within crypto markets, stablecoin lending pools cater to safety demand, as measured by the spread between the T-bill yield and the overnight index swap rate (``money premium”). When the demand for safety rises, these pools experience lower interest rates and higher deposits than all other pools, as investors reallocate their funds toward them. Their safety status, however, fades away during stress periods, such as Terra, FTX, and SVB crashes, hacker attacks, or high VIX. Notably, investors treat all stablecoins as equal in terms of safety and prefer larger protocols and established blockchains (e.g., Ethereum). Our findings shed new light on how unregulated financial systems evolve to satisfy the demand for safety of institutional investors.Liquidity Mechanisms in Decentralized Finance: Design, Fragmentation, and Arbitrage in Real-World Asset Markets
Abstract
"The tokenization of real-world assets (RWAs) represents a significant innovation at the intersection of blockchain technology and financial markets, with the potential to transform the ownership, price discovery, and trading of traditionally illiquid, heterogeneous assets such as real estate. This study empirically investigates the dynamics of secondary markets for tokenized RWAs, utilizing a dataset of 444,535 secondary market transactions from 2019 to 2024. Guided by a theoretical model formalizing trader decision-making, we analyze how different liquidity mechanisms—Automated Market Makers (AMMs), peer-to-peer (P2P) marketplaces, and centralized buyback programs—impact liquidity flows, price discovery, and market participation. Our findings show that AMMs and P2P play a complementary role in price formation. While AMMs provide favorable continuous liquidity, their current design creates exploitable arbitrage opportunities in the fragmented market setting observed, thatcan undermine incentives for AMM liquidity provision. Recognizing that each mechanism serves distinct trading preferences and conditions, we argue that a hybrid model, combining centralized and decentralized elements, can offer a promising and flexible liquidity solution for tokenized heterogeneous assets. However, if the limitations of AMMs in their current form are not addressed, our results suggest that RWAs will not develop into a liquid market but rather remain a digital, high-friction search market with fragmented liquidity and inefficiencies."
Discussant(s)
Brett Falk
,
University of Pennsylvania
Leifu Zhang
,
Hong Kong University of Science and Technology
Quentin Vandeweyer
,
University of Chicago
Tao Li
,
University of Florida
JEL Classifications
- G2 - Financial Institutions and Services