The main aggregator of cryptocurrency trading CoinMarketCap has added several new indicators to the system for evaluating exchanges an...
The main aggregator of cryptocurrency trading CoinMarketCap has added several new indicators to the system for evaluating exchanges and trading in digital assets. This is not the first attempt by the service to influence the problem of artificially inflating trading volumes, with the help of which dubious trading platforms are trying to attract new users. What has changed on CoinMarketCap and why many were unhappy with the innovations - read the material.
On the most visited site of the cryptosphere, the CoinMarketCap aggregator (CMC), there have been big changes over the last month: the system for assessing the quality of trading in crypto assets on exchanges has been replenished with several new metrics at once. The new parameters were introduced in stages, during May, and on June 4, the CMC team announced the completion of the work on the official blog of the company.
The first direction of changes is related to the assessment of the trading pair: in addition to the trading volume reported by the exchange, there is a parameter of “confidence” that the trading data is true. The second new indicator is liquidity. And the third area concerns the rating of exchanges: now it has become the main indicator of the number of users.
"Sorting by these three factors should give a more complete picture for each trading pair, allowing users to make a better decision about which platform to trade on," - CMC believes.
Liquidity
The liquidity parameter ranges from 0 to 1000. It shows how easy it is to buy or sell an asset in a given pair. The more liquid the pair, the higher the chance of avoiding the so-called slippage - making a deal at a price different from the quoted price. The lower the chance of slippage, the lower the transaction costs.
Liquidity indicator on the BTC trading pairs page. Source .
For example, a trader places a market order to buy three bitcoins at $ 9,000 in BTC / USD. But there is only one bitcoin on the exchange that sells at this price, the rest cost $ 9050 and $ 9100, respectively. Therefore, the order will be executed for a total of $ 27,150, not $ 27,000 as the buyer expected. The average price of 1 BTC in this case will be $ 9050. Slippage is $ 50 lost on each bitcoin due to low liquidity (transaction costs).
A large number of sellers and buyers at different prices in a trading pair means high liquidity, and vice versa.
Web traffic
The second parameter is the number of users of the exchange. Since the CMC cannot demand access to traffic data from exchanges, the aggregator decided to use its own estimate - Web Traffic Factor. It collects data from third-party trackers like SimilarWeb and Alexa on various metrics - for example, page views, unique visitors, bounce rate, and so on.
As explained in the CMC, in the spot market, the vast majority of which are individual users, trading volume is determined mainly by liquidity and the number of traders. However, trade manipulations remain a big problem for the crypto market, such as vostrading (making artificial transactions to increase trading activity) or dumping on commissions.
CMC calls this phenomenon "volume inflation" and considers it the main problem of the crypto market. To enable users to evaluate the "cleanliness" of the trades, CMC decided to openly monitor both parameters.
Each metric has its own "weight" in the final score. The final value of the Web Traffic Factor parameter also has a value from 0 to 1000. The most popular exchange will always have a value of 1000, the score for other sites will be calculated in comparison with the leader.
Exchanges are now sorted by CMC ranking by traffic metric by default. Source .
The current Web Traffic Factor values for different exchanges can be viewed in the corresponding CMC rating . It is not indicated for trading pairs yet.
Confidence
In addition to liquidity, CMC evaluates each trading pair according to the “Confidence” parameter. In fact, it shows how much the aggregator trusts the official trading data reported by the exchange. Confidence parameter has three levels: low (confidence below 50%), medium (50–75%) and high (more than 75%).
Confidence indicator on the BTC trading pairs page. Source .
CMC explained :
“We calculate the liquidity of all market pairs and the approximate level of traders on the exchange using the Web Traffic Factor. By adding these factors to account for time and trading, we create a machine learning model to estimate normal volumes for each individual trading pair reported by the exchange. So we can identify deviations when the site reports on a much larger volume than our model predicts. "
Simply put, if in a short time on the exchange, trading in a pair unreasonably grows several times at once relative to a certain “norm”, then CMC will automatically lower the level of confidence.
Reasons for change
Due to its extremely high traffic, CMC is of particular importance for crypto market players. After all, the higher the exchange or crypto asset in the aggregator's rating, the potentially more traffic from CMC it can attract.
Initially, CMC only collected data sent by exchanges themselves. This created opportunities for manipulation. The aggregator was repeatedly criticized for the fact that little-known trading platforms held the first places in the rating of exchanges.
An active discussion about fake trading began after the famous report of the American Bitwise fund. It was prepared as part of a Bitcoin ETF application filed with the US Securities and Exchange Commission (SEC) in early 2019. One of the SEC's complaints was the lack of reliable methods for verifying the trading reporting of exchanges. Then Bitwise conducted a study, according to the results of which it stated that only 5% of the total BTC trade volume on several exchanges can be called real. On these sites, it was proposed to track the price of an asset. However, then the SEC did not accept these arguments, and the commission rejected Bitwise's application.
After that, a number of high-profile studies were released on the problem of fake trading on crypto-exchanges. Traders began to demand from aggregators to change the rating methodology.
The CMC team acknowledged the problems and in the spring of 2019 created an association of exchanges called the Data Accountability and Transparency Alliance (DATA), whose goal was to create market-wide rules and requirements for the transparency of trading platforms. Cointelegraph later announced that 70% of the exchanges listed on CMC are members of the association. Since then, there is no information about the work of the association.
In addition, since 2018, the Adjusted Volume parameter has been working on the CMC, which was an indicator “cleared” of fake or fraudulent transactions and was designed to provide a more equitable rating of exchanges.
At the same time, competitors of CMC have introduced new ways of defining "white" exchanges. For example, CoinGecko, the second most popular trading data aggregator, released a metric called Trust Score. The CryptoCompare portal has also launched its own benchmark for exchanges .
The role of Binance
Meanwhile, the introduction of the adjusted volume parameter did not solve all the problems - the top of the CMC exchange rating was still "occupied" by dubious exchanges. In early April this year, the project team suddenly announced that it had been acquired by the Binance exchange. In a communication on the occasion, both parties assured that CMC will remain a separate entity, independent of the new owner.
Since criticism negatively affected the reputation of CMC, it could also affect the site's traffic, which is the main source of its monetization. Probably at the same time it was decided to update the methodology for evaluating exchanges again. Carilyn Chan did this, after the deal with Binance, replacing its founder, Brandon Chaz, at the helm of CMC.
This is not to say that the introduction of new parameters satisfied the crypto community. First, the traffic factor, Web Traffic Factor, has become the main factor in determining the place in the ranking of exchanges (instead of trading volume). For this reason, Binance took first place in the top, although at the beginning of April it was on the 15th line. Some saw this as playing along with the new owner. Even the head of Binance, Changpeng Zhao, did not like the priority of traffic, as he wrote about on his Twitter.
This ranking is currently heavily biased towards web traffic, not 100% accurate, but better than before. Will continue to iterate.
The rating is now heavily biased towards web traffic and is not 100% accurate, but definitely better than it was before. We will continue iterating.
In addition, the CMC removed the Adjusted Trading Volume parameter. As noted portal DECRYPT, April 3, after the acquisition of the stock exchange Binance aggregator adjusted trading volume on Binance per day was $ 2.1 billion compared with the official data of $ 6.7 billion. Now, the corrected data is not available.
Representatives of crypto exchanges competing with Binance also expressed dissatisfaction. In an interview with Cointelegraph, OKEx CEO Jay Hao compared the acquisition of the aggregator by the Binance exchange to the purchase of a credit rating agency by the bank, which is an unacceptable practice in the financial arena. Huobi top manager Kiara Sun said that the new owner of CMC compromised the neutrality of the service.
In contrast, Bitfinex CTO Paolo Ardoino said that " people can change the ownership structure as they see fit and set whatever metrics they want ."
Criticism from the crypto community prompted Changpeng Zhao to publish a lengthy clarification in which he reaffirmed the independence of CoinMarketCap, although he explained how the change in methodology was agreed with him.
The CoinMarketCap administration emphasizes that the latest changes are only the "first phase", the system for evaluating exchanges and assets will continue to be updated.
