The rapid growth of blockchain technology and the expanding cryptocurrency market have
created exciting new opportunities as well as challenges. While the novel, decentralized trading
mechanisms of crypto markets offer unique benefits — such as greater accessibility,
transparency, and efficiency — they can also attract malicious actors seeking to exploit
vulnerabilities.
In this project, we will take a closer look at how trading works in both centralized exchanges
(CEX) and decentralized exchanges (DEX):
- CEX platforms, like Binance or Coinbase, operate much like traditional stock markets.
Buyers and sellers post bids and asks, and a central operator (or market maker) matches
these orders. Market makers actively adjust their quotes to manage inventory, respond
to market news, and provide liquidity when they see opportunities to profit from price
movements. - DEX platforms, like Uniswap or Sushiswap, work differently. They use automated market
maker (AMM) protocols that enable trading without a central authority. Prices are set
dynamically by smart contracts using liquidity pools, which anyone can contribute to. A
distinctive feature of DEXs is the requirement for blockchain gas fees, which can vary
depending on network congestion and transaction urgency.
Throughout the semester, we will explore the unique features of decentralized exchanges, gain
deeper insight into how these innovative markets operate, investigate their advantages and
potential vulnerabilities, and put our hypotheses to the test using real blockchain data.
Supervisor: Xiaochen Jing
Graduate Supervisor: Zhonghe Wan