CoinMarketCap Debuts New Liquidity Data Metric to Counter Fake Exchange Trading Volumes
CoinMarketCap, the leading data tracking platform which ranks cryptocurrencies as per their market cap has now introduced a new liquidity metric on the platform to rank crypto exchanges as per their avail liquidity. Earlier trading volume was considered as an important parameter to check the popularity or performance of an exchange. However, several studies in recent times have shown that most of the exchanges rely on unethical means such as wash trading to show an inflated trading volume.
Carylyne Chan. Chief Strategy Officer of CoinMarketCap said,
“Today, we are introducing a new metric to highlight what matters most to investors and traders: liquidity. With our Liquidity metric, we hope to provide public good to the crypto markets by encouraging the provision of liquidity instead of the inflation of volumes.”
The firm claimed that the new metric would truly reflect the trading activity on the platform which cannot be faked easily. The new metric which went live on 12th November will be used to rank trading coin pairs and the exchanges on the website. The liquidity of a given exchange is measured on a number of factors which include the order sizes and the distance from the mid-price. The final calculation is done by polling different token pairs at random intervals in 24 hours and the average of those polling values are put out in dollars.
The firm believed that the new metric would provide a better and real picture of over 3000 cryptocurrencies listed on the platform.
How would New Methodology Impact the Wash Trading?
In most of the cases, if the order book varied significantly from the average place, it was most likely the job of the exchange itself trying to inflate their trading volumes, but with the new methodology these trades will be given a very less weight in calculating the overall liquidity, which means wash trading is not gonna help these exchanges to rank higher on CoinMarketCap.
Chan explained how exchanges rely on wash trading to show inflated numbers. He explained
“When people are inflating their volumes, they are basically inserting orders into the order book, so they buy and sell to themselves. What we are trying to do here is to counter that.”
As per the new data, Binance is currently ranked at the top with the highest liquidity of $62.7 million and a trading volume of $876.53 million in the last 24 hours. Interestingly before the liquidity metric went live, Singapore based CoinBene exchange was at the top with $1.2 billion trading volume in 24-hours on 10th November.
Chan believed the new metric would provide a more transparent picture saying,
“We believe our adaptive methodology will make our metric very difficult to ‘game’ as orders would need to be placed close to the mid-price, or risk being counter-productive to the Liquidity metric scoring.”