Is decentralized always better? How market structure affects trading costs for tokenized assets

Blockchain technology has enabled digital assets and reshaped market microstructure through innovative trading protocols. This paper examines two significant developments in securities and markets design: the introduction of tokenized equities and the emergence of Automated Market Maker (AMM) protocols. We show that AMMs can significantly reduce transactions costs, particularly for large size trades in actively traded assets, using both matching and simulation mechanisms between centralized exchanges and AMMs. In contrast, we find that the first tokenized equities struggle to gain adoption, resulting in poor liquidity (high price impacts) and substantial price dislocations from the underlying shares. Our results suggest that while not all decentralized innovations face an easy path to adoption, some have significant potential for application to traditional asset classes.