Market Design with Blockchain Technology

40 Pages Posted: 30 May 2016 Last revised: 27 Jul 2017

See all articles by Katya Malinova

Katya Malinova

McMaster University - Michael G. DeGroote School of Business

Andreas Park

University of Toronto - Finance Area

Date Written: July 26, 2017

Abstract

Blockchain or, more generally, distributed ledger technology allows to create a decentralized digital ledger of transactions and to share it among a network of computers. In this paper, we argue that the implementation of this technology in financial markets offers investors new options for managing the degree of transparency of their holdings and their trading intentions. We first identify two intrinsic features of a distributed ledger that impact the availability of these new options, namely the mapping between identifiers and end-investors and the degree of transparency of the ledger, and we then examine how the implementation design of these critical features affects investor trading behavior, trading costs, and investor welfare, in a theoretical model of intermediated and peer-to-peer trading. The most transparent setting yields the highest investor welfare, despite the risk of front-running. In the absence of full transparency, welfare is weakly higher if investors are allowed to split their holdings among many identifiers.

Keywords: market design, trading, blockhchain, distributed ledger, transparency

JEL Classification: G00, G18, G19, G29, D47, G14

Suggested Citation

Malinova, Katya and Park, Andreas, Market Design with Blockchain Technology (July 26, 2017). Available at SSRN: https://ssrn.com/abstract=2785626 or http://dx.doi.org/10.2139/ssrn.2785626

Katya Malinova

McMaster University - Michael G. DeGroote School of Business ( email )

1280 Main Street West
Hamilton, Ontario L8S 4M4
Canada

Andreas Park (Contact Author)

University of Toronto - Finance Area ( email )

Toronto, Ontario M5S 3E6
Canada

Register to save articles to
your library

Register

Paper statistics

Downloads
2,253
Abstract Views
6,455
rank
5,832
PlumX Metrics