arXiv subjects

Ruizhe Jia

Publications and source records attributed to Ruizhe Jia.

6 recordsLinked to original sources

arXiv2026

Settlement Manipulation in Prediction Markets

Prediction markets increasingly list contracts settling on an asset price that holders can move by trading the underlying. We build a model showing that such contracts transfer wealth from prediction-market liquidity traders to manipulators and harm price discovery in the underlying, even as it becomes more liquid. After the launch of Polymarket's five-minute Bitcoin contract, settlement-time spot order flow spikes, causing large price reversals after settlement. Manipulators capture a large amount of profit, mostly from retail. Manipulation is largely absent in the fifteen-minute contracts: lengthening the contract horizon removes it, providing the market-design remedy our model and evidence support.

q-fin.TR↗

arXiv2024

The Paradox Of Just-in-Time Liquidity in Decentralized Exchanges: More Providers Can Sometimes Mean Less Liquidity

We study Just-in-time (JIT) liquidity provision in blockchain-based decentralized exchanges. A JIT liquidity provider (LP) monitors pending swap orders in public mempools of blockchains to sandwich orders of their choice with liquidity, depositing right before and withdrawing right after the order. Our game-theoretic model with asymmetrically informed agents reveals that a JIT LP's presence does not always enhance liquidity pool depth, as one might expect. While passive LPs face adverse selection by informed arbitrageurs, a JIT LP's ability to detect pending orders for toxic order flow prior to liquidity provision lets them avoid being adversely selected. JIT LPs thus only provide liquidity to uninformed orders and crowd out passive LPs when order volume is not sufficiently elastic to pool depth, possibly reducing overall market liquidity. We show that using a two-tiered fee structure which transfers a part of a JIT LP's fee revenue to passive LPs or allowing for JIT LPs to compete à la Cournot are potential solutions to mitigate the negative effects of JIT liquidity.

q-fin.GN↗

arXiv2022

To EVM or Not to EVM: Blockchain Compatibility and Network Effects

We study the competition between blockchains in a \emph{multi-chain} environment, where a dominant EVM-compatible blockchain (e.g., Ethereum) co-exists with an alternative EVM-compatible (e.g., Avalanche) and an EVM-incompatible (e.g., Algorand) blockchain. While EVM compatibility allows existing Ethereum users and developers to migrate more easily over to the alternative layer-1, EVM incompatibility might allow the firms to build more loyal and ``sticky'' user base, and in turn a more robust ecosystem. As such, the choice to be EVM-compatible is not merely a technological decision, but also an important strategic decision. In this paper, we develop a game theoretic model to study this competitive dynamic, and find that at equilibrium, new entrants/developers tend to adopt the dominant blockchain. To avoid adoption failure, the alternative blockchains have to either (1) directly subsidize the new entrant firms or (2) offer better features, which in practice can take form in lower transaction costs, faster finality, or larger network effects. We find that it is easier for EVM-compatible blockchains to attract users through direct subsidy, while it is more efficient for EVM-incompatible blockchains to attract users through offering better features/products.

cs.GT↗

arXiv2022

The Evolution of Blockchain: from Lit to Dark

Transactions submitted through the blockchain peer-to-peer (P2P) network may leak out exploitable information. We study the economic incentives behind the adoption of blockchain dark venues, where users' transactions are observable only by miners on these venues. We show that miners may not fully adopt dark venues to preserve rents extracted from arbitrageurs, hence creating execution risk for users. The dark venue neither eliminates frontrunning risk nor reduces transaction costs. It strictly increases the payoff of miners, weakly increases the payoff of users, and weakly reduces arbitrageurs' profits. We provide empirical support for our main implications, and show that they are economically significant. A 1% increase in the probability of being frontrun raises users' adoption rate of the dark venue by 0.6%. Arbitrageurs' cost-to-revenue ratio increases by a third with a dark venue.

q-fin.GN↗

arXiv2021

The Adoption of Blockchain-based Decentralized Exchanges

We investigate the market microstructure of Automated Market Makers (AMMs), the most prominent type of blockchain-based decentralized exchanges. We show that the order execution mechanism yields token value loss for liquidity providers if token exchange rates are volatile. AMMs are adopted only if their token pairs are of high personal use for investors, or the token price movements of the pair are highly correlated. A pricing curve with higher curvature reduces the arbitrage problem but also investors' surplus. Pooling multiple tokens exacerbates the arbitrage problem. We provide statistical support for our main model implications using transaction-level data of AMMs.

q-fin.TR↗

arXiv2018

Modeling Environmental Crime in Protected Areas Using the Level Set Method

National parks often serve as hotspots for environmental crime such as illegal deforestation and animal poaching. Previous attempts to model environmental crime were either discrete and network-based or required very restrictive assumptions on the geometry of the protected region and made heavy use of radial symmetry. We formulate a level set method to track criminals inside a protected region which uses real elevation data to determine speed of travel, does not require any assumptions of symmetry, and can be applied to regions of arbitrary shape. In doing so, we design a Hamilton-Jacobi equation to describe movement of criminals while also incorporating the effects of patrollers who attempt to deter the crime. We discuss the numerical schemes that we use to solve this Hamilton-Jacobi equation. Finally, we apply our method to Yosemite National Park and Kangaroo Island, Australia and design practical patrol strategies with the goal of minimizing the area that is affected by criminal activity.

math.NA↗