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Abstract
We study the role of liquidity providers (LPs) in price discovery on decentralized cryptocurrency exchanges. We find that while price discovery occurs predominantly through swaps, liquidity deposits and withdrawals also exert significant and persistent price impacts. Liquidity provision in the ETH-USDC low-fee pool close to the prevailing price has a permanent impact, consistent with informed behavior aimed at maximizing profit and mitigating adverse selection costs. We document heterogeneity across LPs, with larger orders, higher execution priority, narrower intervals, and sophisticated providers exhibiting greater informativeness. Their informational advantage arises in part from faster reactions to public information and strategic liquidity adjustments.