DS Talk by Stefan Voigt: Building trust takes time: limits to arbitrage in blockchain-based markets

Join us online as Stefan Voigt from Department of Economics (ECON), University of Copenhagen, will give a Decentralized Systems Seminar Talk titled: Building trust takes time: limits to arbitrage in blockchain-based markets

Abstract

Distributed ledger technologies replace central counterparties with time-consuming consensus protocols to record the transfer of ownership. This settlement latency slows down cross-market trading and exposes arbitrageurs to price risk. We theoretically derive arbitrage bounds induced by settlement latency. Using Bitcoin order book and network data, we estimate average arbitrage bounds of 121 basis points and demonstrate that asset flows chase arbitrage opportunities. Controlling for inventory holdings as a measure of trust in exchanges does not affect our main results. Blockchain-based settlement without trusted intermediation thus introduces a non-trivial friction that impedes arbitrage activity.

Bio

Stefan Voigt is a tenure-track assistant professor of Finance at the Department of Economics at the University in Copenhagen and a research fellow at the Danish Finance Institute. View his bio here.

Registration

All are welcome. No registration required. Feel free to forward this invitation.

The talk is held on Zoom.

Host: Fritz Henglein (DIKU, University of Copenhagen)