Building Trust takes Time: Limits to Arbirage for Blockchain-Based Assets

Publikation: Working paper › Preprint › Forskning

Standard

Building Trust takes Time : Limits to Arbirage for Blockchain-Based Assets. / Voigt, Stefan; Hautsch, Nikolaus; Scheuch, Christoph.

Review of Finance, 2024.

Publikation: Working paper › Preprint › Forskning

Harvard

Voigt, S, Hautsch, N & Scheuch, C 2024 'Building Trust takes Time: Limits to Arbirage for Blockchain-Based Assets' Review of Finance. https://doi.org/10.2139/ssrn.3302159

APA

Voigt, S., Hautsch, N., & Scheuch, C. (Accepteret/In press). Building Trust takes Time: Limits to Arbirage for Blockchain-Based Assets. Review of Finance. https://doi.org/10.2139/ssrn.3302159

Vancouver

Voigt S, Hautsch N, Scheuch C. Building Trust takes Time: Limits to Arbirage for Blockchain-Based Assets. Review of Finance. 2024. https://doi.org/10.2139/ssrn.3302159

Author

Voigt, Stefan ; Hautsch, Nikolaus ; Scheuch, Christoph. / Building Trust takes Time : Limits to Arbirage for Blockchain-Based Assets. Review of Finance, 2024.

Bibtex

@techreport{6e0c7c95c0404e628219dfaef341adee,
title = "Building Trust takes Time: Limits to Arbirage for Blockchain-Based Assets",
abstract = "Distributed ledger technologies replace central counterparties with time-consumingconsensus protocols to record the transfer of ownership. This settlement latencyslows down cross-market trading and exposes arbitrageurs to price risk. We theoreticallyderive arbitrage bounds induced by settlement latency. Using Bitcoin orderbook and network data, we estimate average arbitrage bounds of 121 basis points, explaining 91% of the cross-market price differences, and demonstrate that asset flows chase arbitrage opportunities. Controlling for inventory holdings as a measure of trust in exchanges does not affect our main results. Blockchain-based settlement without trusted intermediation thus introduces a non-trivial frictionthat impedes arbitrage activity. ",
author = "Stefan Voigt and Nikolaus Hautsch and Christoph Scheuch",
year = "2024",
doi = "10.2139/ssrn.3302159",
language = "English",
publisher = "Review of Finance",
type = "WorkingPaper",
institution = "Review of Finance",

}

RIS

TY - UNPB

T1 - Building Trust takes Time

T2 - Limits to Arbirage for Blockchain-Based Assets

AU - Voigt, Stefan

AU - Hautsch, Nikolaus

AU - Scheuch, Christoph

PY - 2024

Y1 - 2024

N2 - Distributed ledger technologies replace central counterparties with time-consumingconsensus protocols to record the transfer of ownership. This settlement latencyslows down cross-market trading and exposes arbitrageurs to price risk. We theoreticallyderive arbitrage bounds induced by settlement latency. Using Bitcoin orderbook and network data, we estimate average arbitrage bounds of 121 basis points, explaining 91% of the cross-market price differences, and demonstrate that asset flows chase arbitrage opportunities. Controlling for inventory holdings as a measure of trust in exchanges does not affect our main results. Blockchain-based settlement without trusted intermediation thus introduces a non-trivial frictionthat impedes arbitrage activity.

AB - Distributed ledger technologies replace central counterparties with time-consumingconsensus protocols to record the transfer of ownership. This settlement latencyslows down cross-market trading and exposes arbitrageurs to price risk. We theoreticallyderive arbitrage bounds induced by settlement latency. Using Bitcoin orderbook and network data, we estimate average arbitrage bounds of 121 basis points, explaining 91% of the cross-market price differences, and demonstrate that asset flows chase arbitrage opportunities. Controlling for inventory holdings as a measure of trust in exchanges does not affect our main results. Blockchain-based settlement without trusted intermediation thus introduces a non-trivial frictionthat impedes arbitrage activity.

U2 - 10.2139/ssrn.3302159

DO - 10.2139/ssrn.3302159

M3 - Preprint

BT - Building Trust takes Time

PB - Review of Finance

ER -

ID: 336461371