# Liquid Speed: On-Demand Fast Trading at Distributed Exchanges

## TL;DR

This paper models decentralized exchanges where high-frequency traders acquire real-time speed, revealing that low-latency 'sprints' improve price discovery and reduce resource lock-in compared to centralized exchanges.

## Contribution

It introduces a model of decentralized exchanges with flexible capacity, analyzing how HFTs acquire speed and its effects on market dynamics and resource allocation.

## Key findings

- HFTs acquire more speed on DEX but for shorter durations.
- Low-latency sprints speed up price discovery without harming liquidity.
- Speed rents decrease, reducing resource lock-in for zero-sum HFT trades.

## Abstract

Exchanges acquire excess processing capacity to accommodate trading activity surges associated with zero-sum high-frequency trader (HFT) "duels." The idle capacity's opportunity cost is an externality of low-latency trading. We build a model of decentralized exchanges (DEX) with flexible capacity. On DEX, HFTs acquire speed in real-time from peer-to-peer networks. The price of speed surges during activity bursts, as HFTs simultaneously race to market. Relative to centralized exchanges, HFTs acquire more speed on DEX, but for shorter timespans. Low-latency "sprints" speed up price discovery without harming liquidity. Overall, speed rents decrease and fewer resources are locked-in to support zero-sum HFT trades.