An Empirical Analysis of Decentralized Exchanges

This paper examines the development of decentralized crypto exchanges in recent years, focusing on Uniswap as a case study. We first establish a theoretical model to analyze the determination of the returns of liquidity providers, and then compile a comprehensive dataset by extracting detailed trading data from the Ethereum Blockchain. We conduct an in-depth examination of all transactions that have occurred at the largest Uniswap liquidity pools since 2021, and explore the relationships between liquidity providers’ return, impermanent loss, pool size, trading volume and fee revenues through a panel regression analysis.