Price co-movements in decentralized financial markets

ABSTRACT

In decentralized finance (Defi), market participants are allowed to have the right to manage their own funds as opposed to centralized finance (Cefi) with a central custodian, centralized exchanges (CEX). Most Defi projects provide their own service and simultaneously issue a unique token that can be traded in decentralized exchanges (DEX). However, the values of these tokens have rarely been studied. We confirm that the prices of tokens in the Defi market have a persistent tendency to move together. We also demonstrate that the correlation gradually increased from the Defi market’s inception and the price co-movement increased in a bear market, and conversely, decreased in a bull market. Specifically, we find a notable difference in the level of price co-movement between CEX cryptocurrencies and DEX tokens.

KEYWORDS:

• Defi
• Co-Movement
• cryptocurrencies
• correlation

JEL CODE:

• PACS
• MSC

JEL CLASSIFICATION:

• 0000
• 1111 2000

Disclosure statement

No potential conflict of interest was reported by the author(s).

Notes

¹ https://www.coinmarketcap.com..

² https://www.defipulse.com..

Additional information

Funding

This work was supported by the NRF grant funded by MSIT (No. NRF-2022R1F1A1074008) and IITP grant funded by MSIT (No. 2022-0-00984).