Stylized facts in Web3

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Bibliographic Details
Main Authors:	Chen, Wei-Ru, Silva, A. Christian, Tung, Shen-Ning
Format:	Preprint
Published:	2024
Subjects:	Statistical Finance
Online Access:	Acceder al recurso
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author	Chen, Wei-Ru Silva, A. Christian Tung, Shen-Ning
author_facet	Chen, Wei-Ru Silva, A. Christian Tung, Shen-Ning
contents	This paper presents a comprehensive statistical analysis of the Web3 ecosystem, comparing various Web3 tokens with traditional financial assets across multiple time scales. We examine probability distributions, tail behaviors, and other key stylized facts of the returns for a diverse range of tokens, including decentralized exchanges, liquidity pools, and centralized exchanges. Despite functional differences, most tokens exhibit well-established empirical facts, including unconditional probability density of returns with heavy tails gradually becoming Gaussian and volatility clustering. Furthermore, we compare assets traded on centralized (CEX) and decentralized (DEX) exchanges, finding that DEXs exhibit similar stylized facts despite different trading mechanisms and often divergent long-term performance. We propose that this similarity is attributable to arbitrageurs striving to maintain similar centralized and decentralized prices. Our study contributes to a better understanding of the dynamics of Web3 tokens and the relationship between CEX and DEX markets, with important implications for risk management, pricing models, and portfolio construction in the rapidly evolving DeFi landscape. These results add to the growing body of literature on cryptocurrency markets and provide insights that can guide the development of more accurate models for DeFi markets.
format	Preprint
id	arxiv_https___arxiv_org_abs_2408_07653
institution	arXiv
publishDate	2024
record_format	arxiv
spellingShingle	Stylized facts in Web3 Chen, Wei-Ru Silva, A. Christian Tung, Shen-Ning Statistical Finance This paper presents a comprehensive statistical analysis of the Web3 ecosystem, comparing various Web3 tokens with traditional financial assets across multiple time scales. We examine probability distributions, tail behaviors, and other key stylized facts of the returns for a diverse range of tokens, including decentralized exchanges, liquidity pools, and centralized exchanges. Despite functional differences, most tokens exhibit well-established empirical facts, including unconditional probability density of returns with heavy tails gradually becoming Gaussian and volatility clustering. Furthermore, we compare assets traded on centralized (CEX) and decentralized (DEX) exchanges, finding that DEXs exhibit similar stylized facts despite different trading mechanisms and often divergent long-term performance. We propose that this similarity is attributable to arbitrageurs striving to maintain similar centralized and decentralized prices. Our study contributes to a better understanding of the dynamics of Web3 tokens and the relationship between CEX and DEX markets, with important implications for risk management, pricing models, and portfolio construction in the rapidly evolving DeFi landscape. These results add to the growing body of literature on cryptocurrency markets and provide insights that can guide the development of more accurate models for DeFi markets.
title	Stylized facts in Web3
topic	Statistical Finance
url	https://arxiv.org/abs/2408.07653

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