BIS Study: DeFi Markets Favor Large Players

A recent paper by the Bank for International Settlements reveals that decentralized financial markets primarily benefit large capital holders. Smaller participants joining liquidity pools for passive income often face lower-than-expected returns, unable to compete with whales and professionals:

• Market professionals constantly monitor and adjust their positions, providing concentrated liquidity in narrow price ranges to capture most fees, effectively acting as market makers.
• Even during high volatility, when concentrated liquidity isn’t viable, professionals still profit. They retain the financial flexibility to add liquidity, while smaller participants often face significant losses.
• Some use "last-moment liquidity" strategies, adding assets right before major trades. This tactic resembles arbitrage on traditional markets, letting them claim most fees.

As a result, 65-85% of liquidity comes from a handful of large players.

This offers a sobering perspective on DeFi passive income opportunities today.

However, the most curious part of the study is its origin: the Bank for International Settlements. Imagine someone believing that a bank is still needed for international settlements!

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