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Information Asymmetry

Definition

Information asymmetry occurs when one party in a transaction possesses more or better information than the other party. In financial markets, this imbalance can lead to unfair advantages, market inefficiencies, and adverse selection, where less informed parties make suboptimal decisions. Blockchain technology, with its transparent and immutable ledger, aims to reduce information asymmetry by making transaction data and asset ownership publicly verifiable. However, some aspects of digital asset markets, such as insider trading or complex protocol designs, can still present information disparities.