Non-native Tokens and Price Discovery
Theoretical literature argues that price discovery is crucial for blockchain stability. We disclose a new channel of vulnerability of the established blockchains, such as Ethereum. Decentralized ledgers facilitate the transfer of value in both native and non-native tokens. The blockchain capacity is, however, limited and subject to congestion, which leads to higher transaction costs and failure rates. Non-native tokens exacerbate these costs and thus harm price discovery in the native cryptocurrency markets. As a result, the native cryptocurrency prices may become less efficient. Our empirical results highlight that non-native transactions in the form of NFT airdrops on the Ethereum blockchain harm price discovery and price efficiency of the native Ethereum cryptocurrency. (joint work with Konstantin Sokolov and Jiang Zhang)