Paper: arXiv 2404.17227

Authors: Xintong Wu, Wanlin Deng, Yutong Quan, Lin William Cong, Luyao Zhang

Abstract

Trust mechanisms diverge between centralized and decentralized exchanges, representing distinct sociotechnical governance paradigms. However, quantifying trust dynamics and their redistribution between these architectures remains empirically challenging, limiting understanding of how institutional shocks affect market behavior. The FTX collapse offers a natural experiment to bridge this gap. Through an interdisciplinary approach combining causal inference and computational text analysis, we find significant price declines and capital reallocation from centralized to decentralized exchanges following the event. While sentiment metrics showed no sharp discontinuities, topic modeling and network analysis of Discord communities reveal that seasonal holiday discourse obscured underlying trust concerns in centralized exchange forums. These findings underscore the fragility of institutional trust architectures and demonstrate how mixed methods can illuminate behavioral patterns during systemic crises, offering insights for exchange risk management and regulatory assessment.

Complexity vs Empirical Score

  • Math Complexity: 2.5/10
  • Empirical Rigor: 6.8/10
  • Quadrant: Street Traders — practical and empirical, lighter on theory

Why this score: The paper uses an empirical, mixed-methods approach leveraging causal inference, text mining, and network analysis to study market trust following the FTX collapse. While mathematical formalization is light, the novel usage of a natural experiment to capture trust migration across DEXs and CEXs provides practical empirical value.

Research Flowchart

  flowchart TD
    A[Research Goal: Quantify Trust Dynamics & Capital Shifts Post-FTX Collapse] --> B[Data Inputs: Market Prices, Capital Flows & Discord Community Text]
    B --> C[Methodology: Causal Inference & Computational Text Analysis]
    C --> D[Computational Processes: Price Modeling, Topic Modeling & Network Analysis]
    D --> E[Key Finding 1: Significant Capital Reallocation from CEXs to DEXs]
    D --> F[Key Finding 2: Seasonal Discourse Obscured Underlying CEX Trust Concerns]

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2 of 63 cited works are in the corpus; resolved via arXiv source bundles, Semantic Scholar and OpenAlex. Corpus-wide: 2518 linked papers.