![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
![]() |
|
Cryptocurrency News Articles
Navigating the Crypto Landscape: Unraveling Exchange Quality and Exposing Fake Volume
May 06, 2024 at 10:37 am
Centralized exchanges (CEXs) play a pivotal role in crypto markets by facilitating transactions and connecting participants to blockchain networks. Coin Metrics has developed the Trusted Exchange Framework to assess exchange quality based on data quality, transparency, resilience, regulatory compliance, and API quality. Through rigorous testing, Coin Metrics estimates "Trusted Volume" to be $40 billion weekly, significantly lower than reported volumes. By analyzing trading patterns, observing correlations, and applying Benford's Law, Coin Metrics identifies potential fake volume and market irregularities. This enhanced understanding of exchange quality helps detect inefficiencies and drives improvements in the evolving crypto ecosystem.
The Complex Landscape of Centralized Crypto Exchanges: Unveiling Quality Amidst Questions of Fake Volume
Centralized exchanges (CEXs) stand as pivotal intermediaries within the crypto ecosystem, facilitating a substantial portion of the daily trading activity valued in billions of dollars. However, navigating the exchange landscape presents a challenge, as quality varies significantly across these platforms.
In their latest State of the Network report, the Coin Metrics team delves into the intricacies of assessing exchange quality, highlighting the paramount importance of precision and reliability in crypto data. This endeavor led to the creation of the Trusted Exchange Framework, a rigorous vetting process designed to identify the most reputable exchanges for precise market metrics and index constituents.
Coin Metrics' assessment framework encompasses key categories:
Data Quality: Confidence in the accuracy of reported exchange data.
Transparency: Open and accessible information disclosure, including Proof of Reserves and audited balance sheets.
Resilience & Security: Robust measures to safeguard users from market risks and cyberattacks.
Regulatory Compliance: Adherence to regulatory requirements, adjusted for the specific regulatory environment.
API Quality: Seamless integration and reliable performance as programmable entities.
Unveiling the True Nature of Crypto Trading Volume
In the nascent stages of the crypto industry, it was common practice for exchanges to inflate trading volume artificially, painting a misleading picture of legitimacy. A 2019 Bitwise analysis estimated that 95% of crypto exchange volume was fabricated.
Inspired by Bitwise's approach, Coin Metrics developed a series of tests to detect and filter out fake volume, culminating in their "Trusted Volume" estimate. As of April 26, 2024, trusted volume stands at $40 billion per week, roughly half of the year's peak of $80 billion and a third of the all-time high in May 2021.
For perspective, daily trading volumes on NYSE and NASDAQ hover around $1-2 trillion. It's noteworthy that trusted volume is a conservative estimate, excluding decentralized exchanges (DEXs) and CEXs outside the specified coverage universe.
Quantifying Fake Volume: A Complex Endeavor
Determining the percentage of fake volume remains a complex task, heavily dependent on the methodology employed. Any exchange can potentially generate infinite fake volume through wash-trading bots.
Additionally, fake volume is not evenly distributed across exchanges. Reputable and regulated exchanges exhibit significantly lower proportions of fake volume, while less established counterparts often have a majority of their volume fabricated.
Calculating a percentage of fake volume across the entire market could lead to misleading conclusions about crypto activity's legitimacy. Instead, a holistic approach is necessary, considering factors such as organic trading activity and the prevalence of wash trading.
Detecting Fake Volume: A Multifaceted Approach
Coin Metrics employs a comprehensive approach to identify fake volume:
- Direct Data Collection: Acquiring data directly from exchanges and applying industry-developed tests to flag unusual trading behavior.
- Trade Sequence Analysis: Identifying highly unusual distributions of buys and sells, which can indicate wash trading or other automated trading strategies.
- Volume Correlation: Observing correlated fluctuations in trading activity across exchanges, as fabricated volume often exhibits uncorrelated behavior.
- Benford's Law: Analyzing the distribution of leading digits in trade values to detect deviations from natural patterns, which can indicate data manipulation.
Uncovering Market Inefficiencies: Price Discovery and Auditability
Price discovery, the process by which the market agrees on a price, should ideally result in tightly coupled prices across exchanges. However, due to varying levels of market quality and regulatory compliance, price asymmetries arise, creating arbitrage opportunities.
Coin Metrics employs a lead-lag analysis to measure price discovery across exchanges. By estimating the correlation between returns on one exchange and another at different time lags, it's possible to determine the optimal offset for maximum price correlation.
The auditability of crypto data is a defining characteristic of the industry. By scrutinizing patterns in openly available exchange data, irregularities can be detected, enabling a comprehensive assessment of exchange quality.
Conclusion: Embracing Transparency for Market Growth
Although the crypto market continues to exhibit signs of immaturity, its transparent nature allows for the identification of market inefficiencies and the motivation for infrastructure improvements. Coin Metrics' research demonstrates the vital role of data quality and exchange quality assessment in fostering trust and promoting the growth of a robust crypto ecosystem.
Disclaimer:info@kdj.com
The information provided is not trading advice. kdj.com does not assume any responsibility for any investments made based on the information provided in this article. Cryptocurrencies are highly volatile and it is highly recommended that you invest with caution after thorough research!
If you believe that the content used on this website infringes your copyright, please contact us immediately (info@kdj.com) and we will delete it promptly.
-
- Global Frenzy Solidifies BlockDAG’s Aim for $30 by 2030; The Ultimate Crypto to Buy Today Amid Arbitrum Rebound & Optimism Rival
- Jun 16, 2024 at 11:29 am
- Cryptocurrency prices continue to fluctuate as the market experiences ups and downs. In the latest developments, Arbitrum (ARB) price is showing signs
-
- Bitcoin Drops to 30-Day Low as US Inflation Data Raises Concerns, Whales Accumulate
- Jun 16, 2024 at 11:27 am
- Bitcoin, the apex cryptocurrency, has slid to its lowest point in 30 days, dropping to $65,057 as new data raises questions about the future of BTC’s
-
- Top 10 Most Expensive Modern Horizons 3 MTG Cards (As of June 15, 2024)
- Jun 16, 2024 at 11:01 am
- Modern Horizons 3 has been making waves in various formats, from Sealed and Draft to Constructed. Those who care about opening packs for value will al
-
- Sports Illustrated Launches NFT Ticketing Platform SI Tickets Built on Polygon Network
- Jun 16, 2024 at 11:00 am
- U.S. sports publication Sports Illustrated is launching a non-fungible token (NFT) ticketing platform built on the Polygon network. The ticketing mark
-
- Free Ethereum Name Service Airdrops - Easy Claiming Guide
- Jun 16, 2024 at 10:59 am
- Learn how to claim free Ethereum Name Service $ENS airdrops using DappRadar and discover expert tactics to maximize your token claims. Stay updated on
-
- Trump's Desire to Mine All Bitcoin in the U.S. Will Drive a Reimagined Grid
- Jun 16, 2024 at 10:59 am
- Former President Trump has made several overtures to the crypto sector during the 2024 Presidential race, including accepting crypto contributions and
-
- Bitcoin Continues to Make Headlines. Recently, Pablo Ardoino, CEO of Tether, Called Bitcoin the “Only True Decentralized Currency,” Praising Its Uniqueness and Undethronable Status
- Jun 16, 2024 at 10:57 am
- Tether CEO Pablo Ardoino has boldly proclaimed Bitcoin as the “only true decentralized currency,” highlighting its unique characteristics that set it
-
- BlockDAG X1 App Miner Presale Hits $50.4M Milestone as the App Surges, Eclipsing VeChain & Hedera
- Jun 16, 2024 at 10:57 am
- BlockDAG Surges Past $50M in Presale as X1 App Spearheads User-Centric Mining BlockDAG, a decentralised blockchain network known for its energy-effici
-
- BlockDAG's X1 Miner App Beta Launch Skyrockets Popularity, Surpassing Contenders Pyth and Ondo
- Jun 16, 2024 at 10:53 am
- BlockDAG is experiencing a meteoric rise in popularity following the release of the X1 Miner App, which has seen its coin price skyrocket by 1120% fro