Working Papers

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.

A Theory of Crowdfunding Dynamics (with Matthew Ellman)
[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.

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“)

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.