The impact of decentralised market design on liquidity and prices : an empirical analysis of Uniswap protocol upgrades

Abstract

This study explores the impact that market design has on liquidity and asset pricing in decentralised exchanges using Uniswap as a case study. By examining transitions between different Uniswap versions, the research investigates how these changes affect liquidity on Uniswap and the relationship between liquidity improvements and token prices. The findings reveal significant liquidity enhancements following Uniswap version upgrades and a positive, statistically significant relationship between liquidity changes and token price appreciation. This research extends traditional microstructure theory into the growing domain of decentralised finance, underscoring the critical role of market design in influencing key market quality metrics and prices.