Authors: Pablo Azar, Adrian Casillas, and Maryam Farboodi
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Staff Reports
Information and Market Power in DeFi Intermediation
Number 1102
May 2024
May 2024
JEL classification: G23, D82, L14, L22, G14, D43
The decentralized nature of blockchain markets has given rise to a complex and highly heterogeneous market structure, gaining increasing importance as traditional and decentralized (DeFi) finance become more interconnected. This paper introduces the DeFi intermediation chain and provides theoretical and empirical evidence for private information as a key determinant of intermediation rents. We propose a repeated bargaining model that predicts that profit share of Ethereum market participants is positively correlated with their private information, and employ a novel instrumental variable approach to show that a 1 percent increase in the value of intermediaries’ private information leads to a 1.4 percent increase in their profit share.
Author Disclosure Statement(s)
Pablo Azar
I want to disclose that I own:
1. Profits interests in Algorand Inc. and affiliated entities valued at more than $10,000.
2. Less than $10,000 worth of Ripple and Monero in a Binance account.
Adrian Casillas
The author, Adrian Casillas, declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staffreports/index.html.
Maryam Farboodi
The author, Maryam Farboodi, declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
I want to disclose that I own:
1. Profits interests in Algorand Inc. and affiliated entities valued at more than $10,000.
2. Less than $10,000 worth of Ripple and Monero in a Binance account.
Adrian Casillas
The author, Adrian Casillas, declares that he has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staffreports/index.html.
Maryam Farboodi
The author, Maryam Farboodi, declares that she has no relevant or material financial interests that relate to the research described in this paper. Prior to circulation, this paper was reviewed in accordance with the Federal Reserve Bank of New York review policy, available at https://www.newyorkfed.org/research/staff_reports/index.html.
Suggested Citation:
Azar, Pablo, Adrian Casillas, and Maryam Farboodi. 2024. “Information and Market Power in DeFi Intermediation.” Federal Reserve Bank of New York Staff Reports, no. 1102, May. https://doi.org/10.59576/sr.1102
Azar, Pablo, Adrian Casillas, and Maryam Farboodi. 2024. “Information and Market Power in DeFi Intermediation.” Federal Reserve Bank of New York Staff Reports, no. 1102, May. https://doi.org/10.59576/sr.1102
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