Title:                Estimating Investor Preferences for Blockchain Security

 

Speaker:          Nir Chemayaa, University of California, Santa Barbara, Department of Economics,

 

Abstract:

The use of decentralized exchange (DEX) platforms has been growing in the

last few years. New Layer 2 (L2) blockchain alternatives provide better scalability

and lower fees than the Ethereum blockchain (L1), but the security of

L2 relative to L1 is unclear and difficult to identify. Using a structural model

and a novel and comprehensive data set, we estimate investors’ preferences

for blockchain security on two main L2 networks, Polygon and Optimism.

We find that traders anticipate an 0.68% (3.29%) chance of losing the transaction

value when trading on Polygon (Optimism) compared to L1, and a

considerable amount higher than the (0.01%-0.3%) transaction fee charged

on each trade. Our work can be seen as empirical evidence of the tradeoff

between scalability, security, and decentralization, which is the biggest

challenge of blockchain networks.