Deviations from Tradition: Stylized Facts in the Era of DeFi

TL;DR

This paper empirically examines how the structural innovations in DeFi, such as concentrated liquidity in Uniswap v3, alter traditional stylized facts of market behavior, revealing new statistical regularities.

Contribution

It provides the first empirical analysis of how DeFi market structures modify established stylized facts, highlighting the impact of concentrated liquidity and MEV activities.

Findings

New statistical regularities in price and liquidity distributions

Altered autocorrelation functions due to market structure

Impact of MEV searchers on market dynamics

Abstract

Decentralized Exchanges (DEXs) are now a significant component of the financial world where billions of dollars are traded daily. Differently from traditional markets, which are typically based on Limit Order Books, DEXs typically work as Automated Market Makers, and, since the implementation of Uniswap v3, feature concentrated liquidity. By investigating the twenty-four most active pools in Uniswap v3 during 2023 and 2024, we empirically study how this structural change in the organization of the markets modifies the well-studied stylized facts of prices, liquidity, and order flow observed in traditional markets. We find a series of new statistical regularities in the distributions and cross-autocorrelation functions of these variables that we are able to associate either with the market structure (e.g., the execution of orders in blocks) or with the intense activity of Maximal Extractable Value searchers, such as Just-in-Time liquidity providers and sandwich attackers.