Abstract
Global financial crises have led to the understanding that classical econometric models are limited in comprehending financial markets in extreme conditions, partially since they disregarded complex interactions within the system. Consequently, in recent years research efforts have been directed towards modeling the structure and dynamics of the underlying networks of financial ecosystems. However, difficulties in acquiring fine-grained empirical financial data, due to regulatory limitations, intellectual property and privacy control, still hinder the application of network analysis to financial markets. In this paper we study the trading of cryptocurrency tokens on top of the Ethereum Blockchain, which is the largest publicly available financial data source that has a granularity of individual trades and users, and which provides a rare opportunity to analyze and model financial behavior in an evolving market from its inception. This quickly developing economy is comprised of tens of thousands of different financial assets with an aggregated valuation of more than 500 Billion USD and typical daily volume of 30 Billion USD, and manifests highly volatile dynamics when viewed using classic market measures. However, by applying network theory methods we demonstrate clear structural properties and converging dynamics, indicating that this ecosystem functions as a single coherent financial market. These results suggest that a better understanding of traditional markets could become possible through the analysis of fine-grained, abundant and publicly available data of cryptomarkets.
Highlights
Classic econometric models were demonstrated to be limited in explaining crowd phenomena such as economic cycles and crashes, partially since they do not explicitly account for the complex interactions within the economic system
In this paper we study the complete financial activity of millions of participants in an economy comprising of thousands of different financial assets over a period of 2.5 years
We show that this market presents highly volatile dynamics when viewed using classical economic measures
Summary
Classic econometric models were demonstrated to be limited in explaining crowd phenomena such as economic cycles and crashes, partially since they do not explicitly account for the complex interactions within the economic system. In this paper we study the complete financial activity of millions of participants in an economy comprising of thousands of different financial assets over a period of 2.5 years To this end, we use the publicly available Ethereum blockchain transactional data[11]. Notwithstanding the above-mentioned multi-faceted and erratic nature, we substantiate that this complex ecosystem functions as a single market for thousands of types of transactions, when analyzed using network oriented methodologies The latter is established in two complementing aspects — both by applying a static analysis on its underlying networks of interactions, affirming they adhere to a robust, well-defined structure, and by applying a dynamical analysis, ascertaining it has a characteristic network evolution and convergent dynamics. Given that this year constitutes the establishment stage of the Ethereum economy, analyzing its dynamics during this initial period is of great significance
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