Approaching multifractal complexity in decentralized cryptocurrency trading

TL;DR

This study demonstrates that decentralized cryptocurrency trading exhibits multifractal properties similar to centralized markets, with multifractality more prominent in transaction volumes and linked to large fluctuations, despite lower liquidity.

Contribution

It introduces the analysis of multifractality in decentralized crypto markets using MFDFA, revealing complex dynamics and cross-correlations not previously documented.

Findings

Multifractality is present in decentralized crypto trading data.

Multifractality is more pronounced in transaction volumes than returns.

Large fluctuations primarily drive the observed multifractality.

Abstract

Multifractality is a concept that helps compactly grasping the most essential features of the financial dynamics. In its fully developed form, this concept applies to essentially all mature financial markets and even to more liquid cryptocurrencies traded on the centralized exchanges. A new element that adds complexity to cryptocurrency markets is the possibility of decentralized trading. Based on the extracted tick-by-tick transaction data from the Universal Router contract of the Uniswap decentralized exchange, from June 6, 2023, to June 30, 2024, the present study using Multifractal Detrended Fluctuation Analysis (MFDFA) shows that even though liquidity on these new exchanges is still much lower compared to centralized exchanges convincing traces of multifractality are already emerging on this new trading as well. The resulting multifractal spectra are however strongly left-side asymmetric which indicates that this multifractality comes primarily from large fluctuations and small ones are more of the uncorrelated noise type. What is particularly interesting here is the fact that multifractality is more developed for time series representing transaction volumes than rates of return. On the level of these larger events a trace of multifractal cross-correlations between the two characteristics is also observed.