The Crypto Cleansing Process: The Three “T’s” of Success Across Cryptocurrency Exchanges
Transparency, true volume reports and trust are the three clean up acts needed on cryptocurrency exchanges.
The world of cryptocurrency is gradually increasing to levels last seen in 2017 during the massive bullish run that saw Bitcoin’s BTC price cross the $20,000 USD mark across various exchange. However, unlike the previous gold rush in the industry, investors today are more educated and less gullible to manipulation on exchange volume and order book fillings.
This has caused a revamp in exchanges as most of them adopt cleaner and more transparent trading methods for their traders.
The recent bullish run is heavily correlated to the recent events in the crypto-market with factors such as the recent launch of SPEDN app, Microsoft adopting Bitcoin and ease in regulation stances playing a big role in the price hike.
In addition to the market fundamentals, exchanges are also playing their part as the unsung hero by providing the traders with three key T’s of success: transparency, true volume records and trust.
The clean-up act on exchanges
Cryptocurrency exchanges have long been accused of faking trading volumes and tampering with the order books to increase their status on the Coinmarketcap listings.
Wash trades have been reported across various top exchanges tarnishing the appearance of the cryptocurrency market and keeping investors away from the “manipulated markets”.
However, since the start of the year exchanges have moved away from categorizing themselves solely on the daily volumes traded, transaction fees and listing fees to focus on better trading ethics and transparency in their dealings.
The clean-up act by exchanges is slowly impacting the number of traders coming in to the field by providing a secure, trustworthy and true platform to complete the trades.
The three T’s of success on cryptocurrency exchanges
Trust is one of the hardest pillars of success for an exchange to build and the easiest to fall, as all it takes is one mishap. QuadrigaCX traders were left devastated after the company collapsed under the weight of its own insolvency losing the funds of these traders.
Furthermore, the recent case of Bitfinex losing over $850 million USD (now raised through a $1 Billion USD IEO), also showed the impact of losing your investors trust. The case for trust is simple: investors must be certain that the entity can cover its liabilities at any given time.
Platforms have been developed to allow exchanges to calculate their solvency levels without giving away crucial information publicly. APRA, a private preserving computational network, provides exchanges with a decentralized Multi-party Computation (MPC) network to allow calculation of the solvency level using encrypted data.
While transparency is a key metric in any field of business, cryptocurrency exchanges have been in a cocoon of opaque transactions and activities, keeping their traders and the public away. The trend has carried on almost a decade later, with exchanges not learning from the Mt. Gox case. However, some top exchanges such as Binance is slowly brightening the light on activities going on in the backroom of the exchanges in a ploy to keep the trader up to date and make them feel their funds are #SAFU.
For example, the recent hack on Binance that saw the exchange lose 7,000 BTC (~$56 million) was covered by the CEO of Binance, Changpeng Zhao, who gave a step by step analysis of the tragedy to the crypto community. The release of crucial information is a trend that most exchanges are riding on as the crypto community grows larger and more seasoned.
3. Reporting True trading volumes
As explained above, the case for wash trading it taking up root as exchanges aim to climb higher on the Coinmarketcap listings. This tampers with the real trading volumes reported across exchanges which is causing traders to shun such exchanges.
Such is the call of Streamex CEO, Vedran Sisak, who expects exchanges to provide transparency and report true volumes to build credibility with their traders. The current ‘rigged game’ is destined to keep new entrants away from the market hence the need to do away with the phony and deceptive figures created by the exchanges.
New platforms such as Messari’s Real 10 index and the Tie are working to improve the current situation by providing real volume statistics to their users.
One of the team members at The Tie, Joshua Frank, states the company analyses a multitude of factors that point towards fake volumes and wash trading. He said,
“Among the factors that we analyzed were if these exchanges used any market surveillance tools like Nasdaq SMARTS, if they had formal market manipulation policies, and what data they made publicly available through their API such as historical trade level data and live order books.”
Will the fight be won?
The fight to cleanse the cryptocurrency exchanges is still far from being won. According to The Tie’s official data transparency page, only 50% of the exchanges have measures against manipulation of the volumes and wash trading.
However, the industry is slowly cleaning up their acts as most traders prefer a transparent, trustless and true data figures on their choice of exchange.