A two-sided market is an economic platform that serves two distinct groups of users who provide reciprocal benefits to each other, with the platform acting as an intermediary. In digital assets, this typically refers to exchanges connecting buyers and sellers of cryptocurrencies, or decentralized finance protocols linking liquidity providers with borrowers. The value for each group increases with the participation of the other.
Context
News frequently analyzes two-sided markets when discussing the growth of cryptocurrency exchanges, decentralized trading platforms, or lending protocols. The challenge lies in attracting and retaining both sides of the market simultaneously. Strategies to balance supply and demand are critical for the platform’s success and market liquidity.
This dynamic mechanism, inspired by EIP-1559, enshrines a variable MEV extraction rate to formally balance user and validator incentives for system robustness.
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