Vitalik Buterin: evaluation

Transcript context

…Why are there bid-ask spreads at all, and is it possible to get rid of them without putting them somewhere else, such as into mining costs? Ultimately, bid-ask spreads have to exist, and for a couple of reasons. One of them is that offering a zero-fee market maker is itself a costly activity because if you do the equations, you get this result that you’re — instead of earning the average of the earnings of two assets, you’re earning the geometric mean of those two assets, which is lower than the arithmetic mean, and so you lose a bit of money. Another one is this kind of adverse selection argument that says if someone is trying to trade against me . . . rather, if someone is willing to take my offer, then that by itself is evidence that my offer could be mispriced. Because of that, people are not going to be inclined at pushing bid offers too close to other people’s asks. So I think it’s a combination of inefficiencies, some of which are technological, some of which are fundamental. By the way, if we’re asking, “What could economics teach us that would help us more?” I would think a better theory of bid-ask spreads is one of the big gaps.…

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