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Department of Informatics Blockchain and Distributed Ledger Technologies

Price anomalies and abnormal activities on decentralized exchanges

Level: MA
Responsible Person: Tao Yan
Keywords: DeFi, DEX, price anomalies

Decentralised exchanges (DEXs) have been gaining significant attention in the cryptocurrency market due to their decentralized transparent nature. However, the prices of many tokens on DEXs are extremely high or low and more volatile than those on centralized exchanges. Social media platforms play a crucial role in the dissemination of information about token projects and have become popular sources for traders to discuss their opinions on the market. Existing research [1, 2, 3] suggests that social media has a significant impact on the price of cryptocurrencies on centralized exchanges. Compared to centralized exchanges, DEXs have fewer users and lower liquidity, which makes token prices on DEXs more susceptible to be affected by a small number of powerful opinion leaders from social media. Token price on DEXs is determined by the reserves of two tokens in a liquidity pool, and the reserves can be aggregated by transactions, this project also aims to identify abnormal on-chain transactions and activities on DEXs that are triggered by social media information, and investigate the relation.

[1] Mai, Feng, Zhe Shan, Qing Bai, Xin (Shane) Wang, and Roger H.L. Chiang. ‘How Does Social Media Impact Bitcoin Value? A Test of the Silent Majority Hypothesis’. Journal of Management Information Systems 35, no. 1 (2 January 2018): 19–52.
[2] Shahzad, Syed Jawad Hussain, Muhammad Anas, and Elie Bouri. ‘Price Explosiveness in Cryptocurrencies and Elon Musk’s Tweets’. Finance Research Letters, 14 January 2022, 102695.
[3] Guégan, Dominique, and Thomas Renault. ‘Does Investor Sentiment on Social Media Provide Robust Information for Bitcoin Returns Predictability?’ Finance Research Letters 38 (1 January 2021): 101494.
[4] Piñeiro-Chousa, Juan, M. Ángeles López-Cabarcos, Aleksandar Sevic, and Isaac González-López. ‘A Preliminary Assessment of the Performance of DeFi Cryptocurrencies in Relation to Other Financial Assets, Volatility, and User-among price anomalies, abnormal transactions on DEXs, and clustering activities on social media.
Generated Content’. Technological Forecasting and Social Change 181 (August 2022): 121740.