Decentralized exchanges: The "wild west" of cryptocurrency trading

Cryptocurrencies are traded on two types of exchanges - centralized and decentralized. Although trading in the largest cryptocurrencies primarily occurs on centralized exchanges, most newly issued tokens can only be exchanged using decentralized platforms. Volumes in these decentralized exchanges (including automated market makers) has recently increased exponentially. We examine the role of this new and unmonitored market, utilizing an extensive sample of tokens exclusively traded on decentralized platforms. We show significant dif-ferences in the listing and trading characteristics of these tokens relative to their centralized equivalents. A small selection of these tokens obtain listing on a centralized exchange during the sample period, which is accom-panied by a significant increase in trading activity, consistent with market segmentation. A centralized listing results in a migration of volume away from decentralized platforms, revealing a strong preference by token-holders for deeper and more liquid markets over the increased security and anonymity offered by decentralized exchanges.