Christine A. Parlour

Current Working Papers

The Bitcoin protocol and Miner Collusion joint with Alfred Lehar

Bitcoin users can offer fees to miners who record their transactions in the Blockchain. We document high variation of Bitcoin fees, not only over time, but also within blocks. Further, the blockchain rarely runs at capacity, even though fees tend to be higher when blocks are fuller, so miners appear to be leaving ``money on the table.'' We present a simple model of price discrimination to explain our results. We note that mining pools facilitate collusive equilibria, and estimate that they have extracted least 200 million USD a year in excess fees by making processing capacity scarce.

When FinTech competes for Payment Flows joint with Uday Rajan and Haoxiang Zhu

We study the impact of FinTech competition in payment services when banks rely on consumers' payment data to obtain information about their credit quality. Competition from FinTech payment providers disrupts this information spillover, reducing the bank's loan quality and profit. FinTech competition benefits consumers with weak bank affinity (financial inclusion improves), but may hurt consumers with strong bank affinity. We consider three regimes in which payment information flows back into the credit market: FinTech lending, data sales, and consumer data portability. All three regimes improve the quality of loans, although their effects for bank profit and consumer welfare are ambiguous.

Decentralized Exchanges joint with Alfred Lehar

Uniswap is one of the largest decentralized exchanges with a liquidity balance of over 3 billion USD and daily trading volume of over 700 million USD. It is designed as a system of smart contracts on the Ethereum blockchain, and is a new model of liquidity provision, so called automated market making. We collect and analyze data on all 19 million Uniswap interactions from 2018 to the current time. For this new market, we characterize equilibrium liquidity pools and provide evidence that they are stable. We compare this automated market maker to Binance and establish absence of arbitrage and show conditions under which the AMM dominates a limit order market.

Strategic Intermediation in liquidity markets joint with Shawn O'Donoghue and Uday Rajan (draft coming soon)

We develop a model of competition between two exchanges, which we view as platforms on which liquidity is demanded and supplied. The model has a single financial asset, and features competitive liquidity suppliers, a liquidity demander, and two kinds of strategic intermediaries. The first kind is an HFT that can act as a strategic intermediary between the competitive suppliers and the liquidity demander. The second kind is a broker who has the technology to determine optimal order routing across the exchanges. Each exchange earns revenue by charging make fees to liquidity suppliers and take fees to liquidity demanders. We highlight how the make-take fees on each exchange affect the strategies of the HFT and the broker, and thus the properties of each exchange such as volume and spread. We present empirical evidence on the importance of fee splits.