Coin Metrics, a crypto analyst firm, has released a new framework called ‘Trusted Volume Framework’ to evaluate how trustworthy is the trading volume clams made by various exchanges every year.
The analysts at Coin Metrics found that only a handful of exchanges, among hundreds, managed to cut when it comes to offering trading volume data. The study also found that a majority of the exchanges have been showing 10x the actual volume. Exchanges dwell into wash trading, and many other unethical means to show an inflated number to attract more customers.
Key Takeaways of the study revealed:
- Fake trading volumes have been a black mark on the industry – it is difficult to find a single metric to easily sift through the reported numbers.
- We’ve taken a data-driven approach to the problem and are excited to introduce a “trusted volume” metric to help identify the legitimate trading volume.
- Our framework for measuring the reporting quality of exchange is broken down into three broad categories: volume correlation, web traffic analytics, and qualitative features.
As of June 2020, the passing exchanges for ‘trusted’ spot volume include Binance (and Binance US), Bitbank, Bitfinex, bitFlyer, Bitstamp, Bittrex, CEX.IO, Coinbase, Gate.io, Gemini, itBit, Kraken, and Poloniex.
Jon Geenty, a data scientist at Coin Metrics, commented on the growing trend of showing inflated numbers and said:
“Exchanges are especially notorious for boosting volume numbers to game ranking sites or other nefarious reasons. The industry is full of technical information that can be difficult to understand and, at times, misleading. We are working to create a more transparent environment for those within it and a safer, more trustworthy source for those hoping to learn more.”
How did Coin Metrics Evaluate Fake Volume?
Analysts at Coin metrics did not collect data from top exchanges; instead, they collected trading volume data from trusted spot exchanges which included:
The Coin Metrics subjected these exchanges to three litmus tests, which included comparing the price feed for the exchange against the trusted exchanges. Any exchange with a 60% correlation with the trusted exchange ‘passed’ the test.
The second test assesses the exchange’s volume against the web traffic of the platform, so if an exchange is inflating its volume, then the ratio will be higher as well.
And for the third test, Coin Metrics checks qualitative measures taken by the exchange, like whether the exchange is un/regulated, whether the platform boasts KYC features and others.
Among the most popular exchanges which could not pass the test had only one contender in OKEx, which failed on all the tests.
It was revealed that, in the last 24 hours, the overall volume of the crypto market was $13.25 billion, while the exchanges combined showed a total trading volume of $113 billion.