Fragmentation of Distributed Exchanges

8 Pages Posted: 4 Nov 2019 Last revised: 7 Nov 2019

See all articles by Marius Zoican

Marius Zoican

University of Toronto at Mississauga - Department of Management; University of Toronto - Rotman School of Management

Sorin Zoican

Polytechnic University of Bucharest

Date Written: October 24, 2019

Abstract

Distributed securities exchanges may become de facto fragmented if they span geographical regions with asymmetric computer infrastructure. First, we build an economic model of a decentralized exchange with two miner clusters, standing in for compact areas of economic activity (e.g., cities). "Local" miners in the area with relatively higher trading activity only join a decentralized exchange if they enjoy a large speed advantage over "long-distance" competitors. This is due to a transfer of economic value across miners, specifically from high- to low-activity clusters. Second, we estimate the speed advantage of "local" over "long-distance" miners in a series of Monte Carlo experiments over a two-cluster, unstructured peer-to-peer network simulated in C. We find that the speed advantage increases in the level of infrastructure asymmetry between clusters. Cross-region DEX blockchains are feasible as long as the asymmetry levels in trading activity and infrastructure availability across regions are positively correlated.

Keywords: distributed exchange, fragmentation, P2P network, Monte Carlo simulation, financial markets

JEL Classification: G10, G14, G19, C15

Suggested Citation

Zoican, Marius and Zoican, Sorin, Fragmentation of Distributed Exchanges (October 24, 2019). Available at SSRN: https://ssrn.com/abstract=3426207

Marius Zoican (Contact Author)

University of Toronto at Mississauga - Department of Management ( email )


Canada

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

HOME PAGE: http://www.mariuszoican.org

Sorin Zoican

Polytechnic University of Bucharest ( email )

Splaiul Independentei nr. 313
Sector 6
Bucharest, Bucharest 060042
Romania

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