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 Revised March 2025
May 2024 Revised March 2025
JEL classification: G23, D82, L14, L22, G14, D43
We investigate how private information shapes profit sharing in the DeFi intermediation chain, the market structure emerging from proof-of-stake blockchain technology on Ethereum. Leveraging a unique dataset that distinguishes private and public transactions, we find that a one percent increase in the value of private information leads to a 0.57 percent increase in block builders’ profit share, underscoring the role of information asymmetry in intermediated financial markets. We further develop a dynamic bargaining model that illustrates how private information confers market power to intermediaries. These results extend financial intermediation theory by revealing how blockchain transparency interacts with privacy to sustain arbitrage rents, offering timely insights as DeFi integrates with traditional finance.
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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