The Rise of Decentralized Cryptocurrency Exchanges: Evaluating the Role of Airdrops and Governance Tokens

37 Pages Posted: 3 Oct 2021 Last revised: 6 Dec 2022

See all articles by Christos Makridis

Christos Makridis

Stanford University; Institute for the Future (IFF), Department of Digital Innovation, School of Business, University of Nicosia; Arizona State University (ASU); Department of Veterans Affairs (VA)

Michael Froewis

University of Innsbruck

Kiran Sridhar

Stanford University

Rainer Böhme

University of Innsbruck; University of Münster - Department of Information Systems; Massachusetts Institute of Technology (MIT) - MIT Media Laboratory; ICSI Berkeley; TU Dresden

Date Written: August 31, 2021

Abstract

The market capitalization of cryptocurrencies sat at over $2 trillion in 2021. While most of the financial activity remains on centralized systems, decentralized finance (DeFi) has experienced a particular surge with roughly 90,000 users at the start of 2020 to 4.28 million by the end of 2021. Based on data collected from a popular crypto-asset data aggregation service and manually collected data, we document the rapid growth in decentralized exchanges and their differences in volume and price dynamics from centralized exchanges. Next, we investigate the role of airdrops and governance tokens as mechanisms for expanding the base of users and driving up the value of an exchange. While our results do not have a causal interpretation, they provide preliminary evidence that both mechanisms are effective for expanding and strengthening networks, particularly for decentralized exchanges. We also exploit two event studies that suggest the growth in decentralized exchanges is not driven by speculation, but at least partially by value-creating cybersecurity benefits.

Keywords: Airdrops, Blockchain, Decentralized Exchanges, Decentralized Finance, Expectations, Smart Contracts

JEL Classification: D82, D84, G29, L86

Suggested Citation

Makridis, Christos and Froewis, Michael and Sridhar, Kiran and Böhme, Rainer, The Rise of Decentralized Cryptocurrency Exchanges: Evaluating the Role of Airdrops and Governance Tokens (August 31, 2021). Available at SSRN: https://ssrn.com/abstract=3915140 or http://dx.doi.org/10.2139/ssrn.3915140

Christos Makridis (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Institute for the Future (IFF), Department of Digital Innovation, School of Business, University of Nicosia ( email )

Nicosia, 2417
Cyprus

Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
United States

Department of Veterans Affairs (VA) ( email )

810 Vermont Avenue NW
Washington, DC 20420
United States

Michael Froewis

University of Innsbruck ( email )

Universitätsstraße 15
Innsbruck, Innsbruck 6020
Austria

Kiran Sridhar

Stanford University ( email )

Stanford, CA 94305
United States

Rainer Böhme

University of Innsbruck ( email )

Technikerstraße 21A
Innsbruck, Innsbruck 6020
Austria

HOME PAGE: http://informationsecurity.uibk.ac.at/people/rainer-boehme/

University of Münster - Department of Information Systems ( email )

Leonardo-Campus 3
Muenster, NRW D-48143
Germany

HOME PAGE: http://www.wi.uni-muenster.de/security/

Massachusetts Institute of Technology (MIT) - MIT Media Laboratory ( email )

20 Ames St.
Cambridge, MA 02139-4307
United States

ICSI Berkeley ( email )

1947 Center Street, Ste. 600
Berkeley, CA 94704
United States

TU Dresden ( email )

Dresden, 01062
Germany

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