Tag: Bitcoin

Research on external factors that affect the adoption of decentralized exchanges (DEX) for cryptocurrencies: The case of Curve DEX

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(chapter 7 in the book)

Decentralized finance (DeFi) is becoming more and more popular. Decentralized exchanges (DEX) are a type of DeFi that allow users to trade freely and anonymously on a blockchain.
There are two platforms for cryptocurrency trading, centralized exchange (CEX) and DEX. Most of the exchange volume is happening at CEX because they are easier to use. However, DEXs volume is catching up. The reasons for the popularity of DEXs are linked to the unique advantages of DeFi. First, CEX is a business that requires Know Your Customer (KYC). It requires customers’ identification for registration to comply with anti-money laundering regulations and any other laws from the countries its customers come from. Because of this, users are still concerned about several issues such as privacy and the risk of their wealth being confiscated.
This study focuses on how external factors affect the adoption of DEXs and provides suggestions for the development of the entire DEX industry. The study finds that the expansion of the DeFi industry has a significant impact on the adoption of DEXs, so DEXs should cooperate to develop the industry instead of focusing on competing for a larger share of the existing market. Some other external factors also have an impact, such as technological innovation, partner integration and community support. As DeFi is closely related to the adoption of DEX, the study also discusses the external factors that may affect the adoption of DeFi, namely trust, infrastructure, and regulation.

Figure 1. The factors that affect the adoption of Decentralised Exchanges DEX


Related research is mainly focused on the difference between DEXs, and tries to find how a DEX can gain an advantage over other DEXs, but this research concentrates on the external factors to show how to encourage DEX adoption. While market fluctuations may attract short-term attention and reactions, the long-term development of DEX relies on a stable user base in DeFi and continued expansion of the industry.
This research enriches the theoretical framework of DeFi and sheds light on the relationship between DeFi and DEX. A DEX relies on the liquidity of DeFi, with higher liquidity on the blockchain, the DEX liquidity is expected to be higher, leading to slippage, which means the loss that users suffer when trading on DEX, is reduced. This research provides new insights into understanding the liquidity dynamics of DEXs, extending existing theory on the interplay between liquidity and transaction costs.

References
Zarifis A. & Yao Y. (2025) ‘External factors that affect the adoption of decentralized exchanges (DEX) for cryptocurrencies: The case of Curve DEX’ In Zarifis A. & Cheng X. (eds.) Fintech and the Emerging Ecosystems – Exploring Centralised and Decentralised Financial Technologies, Springer: Cham. https://doi.org/10.1007/978-3-031-83402-8_7

New research: The second extended model of consumer trust in cryptocurrency payments, CRYPTOTRUST 2

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Cryptocurrencies’ popularity is growing despite short-term fluctuations. Peer-reviewed research into trust in cryptocurrency payments started in 2014 (Zarifis et al., 2014, 2015). While the model created then is based on proven theories from psychology, and supported by empirical research, a-lot has changed in the past 10 years. This research re-evaluates and extends the first model of trust in cryptocurrencies and delivers the second extended model of consumer trust in cryptocurrencies CRYPTOTRUST 2 (Zarifis & Fu, 2024) as seen in figure 1.

Figure 1: The second extended model of consumer trust in cryptocurrencies (CRYPTOTRUST 2)

Trust in a cryptocurrency is a multifaceted issue. While some believe that the consumer does not need to trust cryptocurrencies because they utilize blockchain, most people appreciate that you must trust cryptocurrencies, just as you must trust any other technology you use that involves some risk.

The first three variables of the model come from the individual’s psychology: Personal innovativeness is divided into (1) personal innovativeness in technology and (2) personal innovativeness in finance. These two influence (3) personal disposition to trust.

There are then six variables that come from the specific context, and not the person’s psychology: The first three are related to the cryptocurrency itself. These are (4) the stability in the cryptocurrency value, (5) the transaction fees and (6) reputation. Institutional trust is shaped by (7) regulation and (8) payment intermediaries that may be involved in fulfilling the transaction. The last contextual factor is (9) trust in the retailer. The six variables from the context influence (10) trust in the cryptocurrency payment which then, finally, influences (11) the likelihood of making the cryptocurrency payment.

Separating personal innovativeness to personal innovativeness in (1) technology and (2) finance, is a useful distinction as some consumers may have different levels of personal innovativeness for technology and finance. The analysis here supports that these are separate constructs.

This research shows that trust in cryptocurrencies has not changed fundamentally, but it has evolved. All the main actors in the value chain still play a role in building trust. There is more emphasis from the consumer on having a stable value and low transaction fees. This may be because consumers now have more experience with cryptocurrencies, and they are better informed. It may also be because there are more cryptocurrencies available, and other alternatives such as Central Bank Digital Currencies (CBDC), so consumers can review the many alternatives and try to identify the best one.

References

Zarifis A., Cheng X., Dimitriou S. & Efthymiou L. (2015) ‘Trust in digital currency enabled transactions model’, Proceedings of the Mediterranean Conference on Information Systems (MCIS), pp.1-8. https://aisel.aisnet.org/mcis2015/3/

Zarifis A., Efthymiou L., Cheng X. & Demetriou S. (2014) ‘Consumer trust in digital currency enabled transactions’, Lecture Notes in Business Information Processing-Springer, vol.183, pp.241-254. https://doi.org/10.1007/978-3-319-11460-6

Zarifis A. & Fu S. (2024) ‘The second extended model of consumer trust in cryptocurrency payments, CRYPTOTRUST 2’, Frontiers in Blockchain, vol.7, pp.1-11. https://doi.org/10.3389/fbloc.2024.1220031 (open access)

New research: The NFT purchasing process and the challenges to trust at each stage

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A Non-Fungible Token, usually referred to by its acronym NFT, uses technology that involves data on a blockchain that cannot be changed after they have been added. Therefore, while they share similar blockchain technology with cryptocurrencies, the functionality is different.
NFT’s functionality enables them to be used to prove ownership of an intangible-digital, or tangible-physical, asset, and the associated rights the owner has.
The most popular practical application of NFTs for digital assets is proving ownership of digital art, virtual items in computer games, and music.
The unique features of NFTs are becoming increasingly appealing as we spend more of our time online. Despite this increased popularity there is a lack of clarity over the final form this digital asset will take. The purchasing process in particular needs to be clarified.
This research developed a model of the purchasing process of NFTs and the role of trust in this process. The model identified that the purchasing process of NFTs has four stages and each stage requires trust.
You see here in the figure, the four stages in the purchasing process on the left, and the trust required in each of these stages along the center. Finally, on the right you see that trust in all four stages leads to trust in an NFT purchase.

Figure 1. Model of consumer trust at each stage of the NFT purchasing process

The four stages of the purchase are: First, set up a cryptocurrency wallet to pay for the NFT, and to be able to receive it. Second purchase cryptocurrency with the cryptocurrency wallet, third use the cryptocurrency wallet to pay for an NFT on an NFT marketplace and finally, there is the fourth, after sales service that may involve returns, or some other form of support.
The model that is supported by our analysis identified four stages to trust: First trust in the cryptocurrency wallet, second trust in the cryptocurrency purchase, third trust in the NFT marketplace, and fourth trust in after-sales services and resolving disputes.

Reference:
Zarifis, A. & Castro, L.A. (2022) ‘The NFT purchasing process and the challenges to trust at each stage’, Sustainability, vol.14, no.24:16482, pp.1-13. https://doi.org/10.3390/su142416482 (open access)

Report on the cryptoasset ecosystem in Latin America and the Caribbean, by the University of Cambridge

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Dr Alex Zarifis

This report offers a balanced analysis of the opportunities, and challenges, caused by the many moving parts of the cryptoasset ecosystem in Latin America and the Caribbean. I am happy to have contributed to this as one of the co-authors. I found it particularly interesting how some countries want to lead in the adoption of cryptoassets while others want to be more cautious. The countries that lead believe in their ability to regulate cryptoassets and manage any risks that emerge. They want to have first mover advantage. Other countries do not believe being an early, enthusiastic, adopter is worth the risks, and prefer to wait until the industry and the regulation mature. Both approaches are valid, but in both strategies it is important to follow developments closely. This is where this report can be helpful in gaining insights into this sector’s development, market trends, challenges and opportunities, as well as regulatory and policy issues.

The cryptoasset sector has grown across Latin America and the Caribbean in recent years and this expansion has led to increased employment opportunities. Many cryptoasset firms are now full-service fintech providers. The regulatory views on digital assets have shifted, with around a third of public sector respondents being more positive towards cryptoassets. The private sector participants are also more positive now, and they collaborate more with regulators through innovation hubs and sandboxes. The private sector respondents also see growth opportunities in DeFi services and onboarding corporate clients.

However, there are also challenges to address with the most important one being the lack of regulatory clarity. Public sector respondents believe they need more expertise in cryptoassets.

Reference

Proskalovich R., Jack C., Zarifis A., Serralde D.M., Vershinina P., Naidoo S., Njoki D., Pernice I., Herrera D. & Sarmiento J. (2023) ‘Cryptoasset ecosystem in Latin America and the Caribbean’, University of Cambridge – Cambridge Center for Alternative Finance (CCAF). Available from: https://www.jbs.cam.ac.uk/faculty-research/centres/alternative-finance/publications/crypotasset-ecosystem-in-latin-america-and-the-caribbean/