Working Papers

A Theory of Crowdfunding Dynamics (with Matthew Ellman)
Revise and Resubmit: Journal of the European Economic Association (JEEA)
[BSE Focus article]

This paper develops a dynamic model of crowdfunding to characterize success rates and welfare and to identify optimal transparency and design policies. We also characterize average bidding profiles. Bidding costs generate two dynamic forces: (1) decreasing pivotality, driven by reduced scope for strategic complementarity as the deadline nears, pushes the slope downwards; (2) a news effect from observed bidding further pushes the slope downwards for concave cost distributions, but upwards for convex costs. These effects can explain prominent bidding patterns. Non-disclosure of funding progress yields higher welfare than full transparency given homogeneous costs. However, cost heterogeneity favours disclosure by enabling early bidders to activate otherwise passive, higher cost bidders. We also investigate the tradeoff between raising prices and thresholds and we demonstrate success and welfare gains from the indirect dynamic pricing permitted by current platforms.

The Economics of Constant Function Market Makers (with Julien Prat)

We use microeconomic theory to describe the inner workings of Constant Function Market Makers (CFMMs). We show that standard results from consumer theory apply in this new context, endowing us with powerful tools to characterize the optimal design of CFMMs. We employ them to analyze the externalities that traders and liquidity providers exert on each other when interacting through a CFMM. Liquidity providers reduce the execution costs by flattening the bonding curve on which trades are executed. Arbitrageurs impose an adverse selection cost on liquidity providers by unfavorably rebalancing their portfolio. We show that the strengths of these two externalities are pinned down by the curvature of the bonding curve and are inversely related to each other, thereby identifying the fundamental economic tradeoff that market designers have to address.

Transaction Fees and Seigniorage in Proof-of-Work Cryptocurrencies

I study the optimal design of transaction fees and seigniorage for a Proof-of-Work cryptocurrency. Commodity merchants need blockchain miners to record their payments and secure the blockchain by remaining active. Fees make miners willing to process merchants’ transactions by compensating for the risk that doing so slows down block transmissions making blocks invalid. Seigniorage convinces miners to operate when pending transactions are scarce. Both seigniorage and fees are necessary. As fees are distortionary for merchants, an optimal design uses them only as required by incentive-compatibility.

Book Chapters

SoK: Constant Function Market Makers (with Julien Prat and Myriam Kassoul)
Forthcoming: Chapter 10 in “A Companion to Decentralized Finance, Digital Assets and Blockchain Technologies”, edited by Eward Elgar Publishing Ltd)
[Working paper version]

We provide an overview of the academic literature on Automated Market Makers for Decentralized Exchanges. Our review puts an emphasis on contributions from researchers in economics and finance. We cover papers that study the optimal design of Automated Market Makers. Then we discuss models that leverage the insights from the literature on two-sided markets to characterize the equilibrium size of liquidity pools and the incentives of liquidity providers. Finally, we review recent research on the interactions between Miner Extractible Value and Decentralized Exchanges.

Outlooks and Non-Scientific Publications

A Hitchhiker’s Guide to Decentralized Finance

Decentralized Finance is a major innovation trend that is shaking the FinTech world. DeFi refers to a universe of financial applications that rely on blockchain technology to achieve decentralization. In other words, DeFi applications allow their users to perform traditional financial operations without relying on intermediaries, which are instead crucial in traditional, Centralized Finance. This outlook provides an overview of the technological stacks upon which DeFi is built and discuss the emerging trends that are shaping this new industry.