Trust Dynamics in Cryptocurrency Markets: Centralized vs. Decentralized Exchanges

TL;DR

This study investigates trust shifts between centralized and decentralized cryptocurrency exchanges during systemic shocks, using interdisciplinary methods to analyze market and community data.

Contribution

It introduces an empirical approach combining causal inference and computational text analysis to quantify trust dynamics during a market crisis.

Findings

Price declines and capital reallocation from centralized to decentralized exchanges after FTX collapse.

Sentiment metrics remained stable, but community discussions revealed trust concerns.

Holiday discourse masked underlying trust issues in centralized exchange forums.

Abstract

Trust mechanisms diverge between centralized and decentralized exchanges, representing distinct sociotechnical governance paradigms. However, quantifying trust dynamics and their redistribution between these architectures remains empirically challenging, limiting understanding of how institutional shocks affect market behavior. The FTX collapse offers a natural experiment to bridge this gap. Through an interdisciplinary approach combining causal inference and computational text analysis, we find significant price declines and capital reallocation from centralized to decentralized exchanges following the event. While sentiment metrics showed no sharp discontinuities, topic modeling and network analysis of Discord communities reveal that seasonal holiday discourse obscured underlying trust concerns in centralized exchange forums. These findings underscore the fragility of institutional trust architectures and demonstrate how mixed methods can illuminate behavioral patterns during systemic crises, offering insights for exchange risk management and regulatory assessment.