Trust Dynamics in Cryptocurrency Markets: Centralized vs. Decentralized Exchanges
For cryptocurrency market participants and regulators, this work quantifies trust dynamics and behavioral patterns during systemic crises, though the findings are specific to the FTX event.
Using the FTX collapse as a natural experiment, the study finds significant price declines and capital reallocation from centralized to decentralized exchanges, with sentiment metrics showing no sharp discontinuities but topic modeling revealing obscured trust concerns.
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.