Presenter: Evgeny Lyandres, Tel Aviv University

Title: Does Market Efficiency Impact Capital Allocation Efficiency? The Case of Decentralized Exchanges

Abstract: We examine the effect of market efficiency on the efficiency of capital allocation in the setting of decentralized exchanges of crypto assets. Utilizing data on nearly 100 million trades in concentrated liquidity pools on two leading blockchains, we construct a highly granular, capitalmarket-based measure of capital allocation efficiency. We also design and implement a method of identifying market-efficiency-restoring arbitrage transactions among all blockchain transactions and construct arbitrage-based granular measures of market efficiency. We find that market efficiency has positive, economically and statistically significant, and causal impact on capital allocation efficiency.

Host: Stefan Hirth