I am a fourth-year Ph.D. student at MIT Sloan finance, and I am interested in cryptocurrencies, financial development, entrepreneurship, and labor. Recently, I worked on understanding the competition in a crypto intermediary market similar to mutual funds, and an anatomy of the largest stablecoin run using depositor-level data from the blockchain. I studied statistics at the University of Chicago, where I briefly reflected on the IPO market in China. I received B.S. in mathematics summa cum laude from UCLA, where I worked on large-scale optimization algorithms. A native of Zhengzhou, China, I constantly miss hulatang (a spicy soup).
- My CV
- Google Scholar: Jiageng Liu
- Twitter: @JiagengLiu
- Email: jiageng @ mit.edu
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Research
3. What’s at Stake? Competition in Crypto Staking, 2024
with Igor Makarov and Antoinette Schoar. Working paper.
We study competition in the crypto staking market. In Proof-of-Stake blockchains, validators play a central role in validating transactions on the blockchain and receiving rewards for these services. Since the likelihood of being chosen as a validator depends on the size of the stake, many validators pool tokens (stakes) from delegators and compete for delegators on fees, returns, and service quality. The competition between validators is similar to mutual funds or money market funds. The blockchain data provides a unique opportunity to observe granular transaction-level data of delegator investments as well as the pricing decisions of validators. We first document a significant heterogeneity in delegator behavior. On average, delegators choose validators that offer better returns, but a sizeable share of delegators appear “sleepy” and do not switch to better pools. We show that delegator heterogeneity is priced in equilibrium: Validators charge higher fees when they have a higher share of sleepy delegators. In addition, validator returns are designed with explicitly increasing return-to-scale economies. Larger validators set fees to take advantage of these economies of scale. Using an exogenous shock to the fee schedule, we show that validators are faster to reduce fees when they have less sleepy delegators or do not benefit from scale economies.
Presented at Innovations in Financial Intermediation Symposium, Bank of Canada.
with Igor Makarov and Antoinette Schoar. Working paper.
Terra, the third largest cryptocurrency ecosystem after Bitcoin and Ethereum, collapsed in four days in May 2022 and wiped out $50 billion in valuation. At the center of the collapse was a run on a blockchain-based borrowing and lending protocol (Anchor) that promised high yields to its stablecoin (UST) depositors. Using detailed data from the Terra blockchain and trading data from exchanges, we show that the run on Terra was a complex phenomenon that happened across multiple chains and assets. It was unlikely due to concentrated market manipulation by a third party but instead was precipitated by growing concerns about the sustainability of the system. Once a few large holders of UST adjusted their positions on May 7th, 2022, other large traders followed. Blockchain technology allowed investors to monitor each other's actions and amplified the speed of the run. Wealthier and more sophisticated investors were the first to run and experienced much smaller losses. Poorer and less sophisticated investors ran later and had larger losses. The complexity of the system made it difficult even for insiders to understand the buildup of risk. Finally, we draw broader lessons about financial fragility in an environment where a regulatory safety net does not exist, pseudonymous transactions are publicly observable, and market participants are incentivized to monitor the financial health of the system.
Presented at LSE, Northwestern Kellogg, MIT Sloan, 2nd Annual DeFi conference, ICI–SNPI Conference, NYU Stern, McGill, MIT Digital Currency Initiative, LUISS, Bocconi, Chicago Fed, Chicago Booth, NBER Summer Institute 2023, 7th Annual Macroprudential Policy Conference, OSU, CFRI Conference, Federal Reserve Board, Tulane, Frankfurt, Banque de France, Vanderbilt, King's, LBS, Jackson Hole.
Withdrawals from Anchor from May 6 to May 14, 2022, broken down by the size of the deposit balance of addresses as of May 6, before the run.
1. Delayed and Distorted Price Discovery: Post-IPO Stocks in China, 2020
Master's thesis. Resting.
Abstract: I document that regulatory changes in the Chinese IPO market in 2013-14 distorted the price of new stocks and delayed price discovery. The rules impose a low price-to-earnings cap on the IPO price and restrict the daily price changes after listing. Under the new regulations, prices stay at the (increasing) upper limit with minimal trading for about two weeks after the listing date. Although the listing prices are suppressed by the P/E limit, the trading prices are, on average, 15% to 30% higher than those before the rules. This translates to a 240 billion CNY higher valuation among post-IPO stocks, though the overvaluation reverses to the market median level over the first year after listing. A shift in IPO industry composition from high-P/E to low-P/E after the rule change is consistent with market distortion.
Presented at MIT Golub Center for Finance and Policy (GCFP).
Price-to-Earnings (P/E) of IPOs in China, 2010-2020. Black points are the P/E of new stocks being listed on the Shanghai or Shenzhen Stock Exchanges. The blue line is the median P/E of all stocks being traded on the market. The 2014 rule caps new listings at 23.