Report: Exchanges Continue to Exploit Low Market Cap Coins, 'Massively Inflate Volumes'

  • Crypto exchange, Binance, still has by far the most daily trading volume out of all major trading platforms.
  • Blockchain Transparency Institute has reported that many exchanges may be using small cap coins to orchestrate pump-and-dump schemes.

Malta-based digital asset exchange, Binance, is still the top-ranked crypto trading platform as it regularly records a 24-hour volume of $1 billion - according to the Blockchain Transparency Institute.

Over 160,000 traders visit Binance’s crypto trading platform every 24 hours. Other crypto exchanges, such as OKEx, which is ranked second, do not have nearly as much daily activity as Binance - in terms of API volume, mobile volume, and the number of active users.

OKEx Daily Trading Volume Is $700 Million With Only 30,000 Users

Average daily trading volume on OKEx is of around $700 million and about 30,000 crypto traders use the Hong Kong-based digital currency exchange each day.

Notably, Blockchain Transparency Institute’s research shows that many digital asset exchanges continue to target altcoins with relatively lower market caps - by creating hype and generating fake volume and trading activity, in order to orchestrate pump-and-dump schemes.

Commenting on the exploitative nature of various exchanges, Blockchain Transparency’s research team said:

We also found many of these exchanges to be preying on low market cap coins which are desperate for the recognition and volume of a top 10 or 25 exchange. In many of the crypto projects we spoke with, this also involves supplying the exchange with a large amount of tokens which are then used to massively inflate volume numbers on [financial data site] CoinMarketCap, luring in prospective traders from other exchanges with much lower, but real volume.

Blockchain Transparency Institute

Trading Advisory List 

In order to increase awareness about real crypto market activity, the Blockchain Transparency Institute has published a Trading Advisory List - which shows the exchanges “with over 80% API trading.”

The Trading Advisory List is also available for mobile users, and it lists each exchange’s rank on CoinMarketCap, the number of 24-hour mobile and web users, the total active users on its platform, among other key stats aimed at giving traders an accurate report of trading activity in the global digital currency market.

Blockchain Transparency’s previous report noted: 

Many of the top 100 exchanges on CoinmarketCap’s rankings used wash trading to gain a marketing advantage over their competitors … these exchanges gained 80-90% of their referral web traffic from CoinMarketCap alone … [and they had been] asking from 5 BTC … to 60 BTC for listing fees.

Blockchain Transparency Institute

Inconsistencies In Financial Data 

As CryptoGlobe reported today, cryptoasset data provider, CryptoCompare has published its ‘October Exchange Review.’ The review aims to assess the “integrity of exchange data” by analyzing user trade, web traffic, and order book information.

Although the review itself does not comment on the findings of the analysis, CryptoGlobe found some inconsistencies - specifically with Trans-Fee Mining (TFM) exchanges. TFM exchanges usually have the lowest number of buy and sell orders and significantly low web traffic, when compared to their reported daily trading volume.

CryptoCompare’s review explained that TFM exchanges “rebate 100% of transaction fees in the form of their own exchange tokens.”

Binance CEO, Changpeng Zhao, told CryptoGlobe in an interview that TFM exchanges are “damaging” to the crypto space, however, they are “not a threat” to Binance’s business.

38% of Crypto Exchanges Interact With High-Risk Entities in 25% or More of Their Transactions

Leading cryptoasset data provider CryptoCompare has published an updated version of its cryptocurrency Exchange Benchmark. The report details that 38% of crypto exchanges interact with high-risk entities in 25% or more of their transactions.

According to CryptoCompare’s Exchange Benchmark, interactions with high-risk entities are considered when the cryptoasset data provider is raking exchanges. These interactions are measured according to CipherTrace’s Interaction Risk Score, which profiles transactional risk by “deanonymizing risky entities and illicit activities to identify criminal sources of funds and money laundering exposure.”

CryptoCompare then scores exchanges according to the percentage of transactions conducted with entities deemed high-risk. These include criminals, darknet markets and vendors, gambling projects, malware operators, cryptocurrency mixers, ransomware operators, and OFAC sanctions addresses.

The benchmark details that addresses with up to 25% of transactions conducted with these entities receive some points, but those above said mark receive none. Notably, 38% of cryptoasset exchanges were above it.

Data shared in the report detailed that Top-Tier cryptoasset exchanges, those graded AA to B in the report, interact less with these entities, while Lower-Tier exchanges, those rated C-E, interacted more. While both AA-related exchanges, Coinbase and Gemini, had no interactions with high-risk entities, some of the exchanges with A, BB, and B ratings did.

As CryptoGlobe reported, the Exchange Benchmark also revealed Top-Tier exchanges are gaining market share against Lower-Tier exchanges. It details that top-tier exchanges accounted for 32% of the global volumes in Q4 2019, while in the first quarter of this year they accounted for 36%.

In the second quarter of 2020, the Top-Tier exchanges already accounted for 40% of the global trading volume. In June these exchanges got to a 46% market share. Lower-Tier Exchanges, have seen their share of the space’s total trading volume drop from 68% to 60% in the last three quarters.

Featured image via Pixabay.