(Mis)applications of Crypto in the Real World
Paper Session
Sunday, Jan. 3, 2027 8:00 AM - 10:00 AM (EST)
- Chair: Maryam Farboodi, Massachusetts Institute of Technology
Strategic Forking in Blockchains
Abstract
A central design goal of settlement systems is that security should not degrade when transaction values are high. We show that Proof-of-Work blockchains fail this test: higher transaction fees—the reward for a successful attack—cause miners to deviate from honest behavior and fork the chain, undermining settlement finality when it is most needed. We exploit a unique feature of Ethereum’s Proof-of-Work era that records, for each fork, the precise timestamps of both the winning block and its displaced competitor. Under honest, frictionless mining, the earlier block should always win; instead, we observe cases where a block timestamped later displaces one timestamped earlier. Instrumenting fees with major hacks and network crises, we find that a one-standard-deviation increase in log fees raises the probability of such reversals by 12.1 percentage points on a base rate of 14.3 percent. Fee increases have no effect on the probability of the earlier block winning, and survives controls for network congestion and latency. The evidence suggests that Proof-of-Work violates a foundational property of settlement systems: enforcement that scales with the value at stake.Correlated Signals and Certification Value: Evidence from Crypto Listings
Abstract
When multiple certifiers of different quality screen the same underlying asset, their assessments reveal correlated information. We study how markets process these overlapping certification signals using cryptocurrency exchange listings, a setting where tokens frequently list on multiple exchanges spanning the full quality spectrum — both sequentially over time and simultaneously within the same window. We find that listings on top-tier exchanges generate average cumulative abnormal returns of 7.2%, compared with 0.1% for bottom-tier exchanges. To disentangle the overlapping information, we develop two complementary approaches. First, using a Heckman two-stage framework for sequential listings, we show that prior certifications attenuate subsequent listing premia through two channels: reduced surprise (the market expected the listing given observables) and informational substitution (the private information overlaps with what prior listings already revealed). Notably, substitution is asymmetric — prior mid-tier listings substitute for top-tier ones, but prior bottom-tier listings do not, consistent with large information distance between quality tiers. Second, extending the conditional event-study framework of Nayak and Prabhala (2001) to a multivariate setting, we decompose simultaneous listing premia into an exchange-specific component (informational complement) and an implied-uplisting component (informational substitute). Between 42.9% and 94.4% of the market reaction to sub-top-tier listings reflects the implied uplisting signal rather than exchange-specific information. We validate these results using the June 2023 Binance SEC lawsuit as a natural experiment and confirm that current listings predict future uplistings, with post-listing drift highest when implied signals are confirmed. Our findings imply that prior estimates of cross-listing premia in traditional equity markets may substantially overstate the exchange-specific effect by ignoring overlapping certification signals.Are Crypto Anti-Money Laundering Policies Effective?
Abstract
We evaluate four major types of crypto enforcement actions. First, OFAC sanctions against the Tornado Cash mixer resulted in a 60% decline in volume, increased obfuscation costs by 33 bps, doubled detection probability, and shifted usage toward more traceable swaps and bridges. Second, other OFAC sanctions against individuals, while rare, left over 100,000 BTC and 155,000 ETH stuck on-chain. Third, $1.34 billion in Tether is frozen, pushing criminals to costlier DeFi services. Fourth, overseas exchange acceptance of sanctioned funds declines only after U.S. DOJ settlements. Overall, anti-money laundering policies appear effective, though our findings suggest areas for substantial policy improvement.Discussant(s)
N.R. Prabhala
,
Johns Hopkins University
William Mann
,
Emory University
Michael Sockin
,
University of Texas-Austin
JEL Classifications
- G1 - General Financial Markets