Fake Volumes on Centralized Crypto Exchanges Can Be Eliminated by Decentralized Platforms, Experts Say

Omar Faridi
  • Sasha Ivanov, the CEO of the $200 million Waves platform, says decentralized exchanges can effectively remove artificial trading volume.
  • Investigations show several major centralized exchanges are faking trading volumes.

Sasha Ivanov, CEO of the Waves platform, recently stated that decentralized cryptocurrency exchanges (DEX) are more reliable than centralized trading platforms. According to Ivanov, who’s also the CEO of blockchain startup Vostok, decentralized exchanges are effective at removing fake volumes from the crypto market.

Changpeng Zhao, the CEO of the world’s largest centralized crypto exchange Binance, earlier made the same point as his analysis showed major crypto trading outlets had been intentionally creating fake volumes on their exchanges

Manipulating Trading Volumes

Meanwhile, Crypto Exchange Ranks (CER), a research group, conducted an investigation by examining the trading volumes on BitForex, CoinEx, and FCoin. CER found that all three crypto exchanges were established fairly recently, but were already being identified as top crypto exchanges.

CER’s researchers extensively looked at the three exchange’s social media activities and the amount of traffic - or users - on their websites. The research group then said they compared their operations to UpBit and Kraken, which are well-established crypto exchanges.

According to the group’s findings, the three newer exchanges did not have nearly as much social media presence, online traffic, or active users to realistically have trading volumes as high as they did. As CryptoGlobe covered, FCoin’s daily trading volume hit $5 billion.

Thanks to the controversial trans-fee mining model, BitForex hit a $14 billion daily trading volume. Commenting on the allegedly fake volumes, CER’s research group said:

Considering our analysis results, it’s evident that BitForex is likely pumping its trade volume using wash trade.

CER

Per CER’s analysis, BitForex is likely “manipulating” its trading volumes, while noting that it’s quite easy and also cheap to artificially boost volume through wash trading or bot trading on centralized exchanges.

Opaque Business Models

Furthermore, many crypto analysts think that since there is a central entity controlling centralized trading platforms, their operations may not be as transparent. For instance, a centralized exchange could potentially be using an entirely different business model than what they’re sharing with the media, and their revenue may not be as high as it claims.

Ivanov confirmed added:

Of course, there is this problem of fake volumes. Exchanges are trying to inflate their volumes through imitating their natural volumes, mostly for marketing purposes.

Sasha Ivanov

The CEO of the Waves platform – which runs its own DEX - also said the issue needs to be addressed, as it has already been solved in traditional financial markets. To solve it, Ivanov recommended more control, monitoring, and proper regulations for crypto exchanges.

Safety and Transparency

Partly because of these problems and an alarmingly high rate of hacking and security breaches on centralized exchanges, various crypto companies are now developing decentralized exchanges. Proponents of peer-to-peer exchanges claim they tend to be more secure and transparent.

Fred Ehrsam, co-founder of crypto exchange Coinbase, noted that in addition to greater transparency and security, decentralized exchanges are able to offer more liquidity. This, as they can share large liquidity pools by integrating multiple exchange protocols, according to Ehrsam.

Despite these potential advantages, peer-to-peer (P2P) exchanges have been criticized for their “unfriendly” or hard-to-use interfaces. Moreover, decentralized exchanges require smart contracts to directly settle transactions through a public blockchain.

Numerous Fake “Mass Incoming Transfers”

While this can be inconvenient for many crypto traders, decentralized trading platforms like AirSwap, Kyber Network, and Waves appear to be working on a better user experience. Currently, however, users who have an active Waves wallet, which is linked to its decentralized exchange, will likely encounter numerous spam transactions.

Notably, almost all of them are fraudulent “mass incoming transfers”, and clicking on them directs users to malicious phishing websites that ask for their SEED. Should an unsuspecting user enter their private SEED on these fake websites, then their funds will most likely get stolen.

Ivanov acknowledged this problem, but said:

Everyone can see all the trades and it is quite [easy] to see if some trades are suspicious...Decentralized exchanges are going to become more and more important, and it will be much more easier to filter out fake volumes in a decentralized setting.

Sasha Ivanov

Notably, as CryptoGlobe reported, Binance is also working on developing a decentralized exchange, even though it could negatively affect its current business strategy.