Price Discovery on Decentralized Exchanges
Abstract Decentralized exchanges (DEXs) allow traders to express their willingness to pay for quick execution through a public priority fee bidding mechanism. We provide evidence that high-fee DEX trades are more informative and contribute more to price discovery. Using address-level blockchain transaction data, we show that informed traders persistently bid higher fees to secure early execution, revealing a strong willingness to pay for execution priority. Further, analysis of Ethereum mempool data demonstrates that informed traders employ a “jump bidding” strategy, placing high initial bids to deter potential competitors.
Authors
- Shihao Yu
- Ruizhe Jia
- Agostino Capponi
Institutions
- University of the District of Columbia (US)
- Singapore Management University (SG)
- Stanford University (US)
Publication Details
- Journal
- Review of Financial Studies
- Published
- 2026-01-14
- DOI
- https://doi.org/10.1093/rfs/hhag002
- Citations
- 1
- Primary Topic
- Auction Theory and Applications
- Type
- article
- Field-Weighted Citation Impact
- 58.08