Week 12 - Crypto & Arbitrage

Question 1

What are stable coins?

Answer 1

A digital asset that is pegged against a real asset (currency, commodity)

Question 2

What is the issue of centralised crypto exchanges?

Answer 2

Lack of regulation
- monopoly in trading, clearing and settlement
- Inflated volumes

conflict of interest
lack of investor protection
market integrity
lowers confidence in financial market

Question 3

What are the special features of a centralised exchange?

Answer 3

1. fiat currency to crypto exchanges
2. limit order book
3. exchange is the custodian and recorder of transactions

Question 4

What are the special features of a decentralised exchange?

Answer 4

1. Purely peer-to-peer trading
2. only crypto-to-crypto trading
3. Automated market makers
4. gas fees
5. self custodians
6. settled on blockchain

Question 5

How to you detect falsified volume on a centralised exchange

Answer 5

1. Trading size graph
   - Graph should be slopping right
2. Volume spikes
   - Should appear random but correlate across exchanges
3. Spread graphs
   - Bid-ask should be tight