Trans-Fee Mining Exchanges Have Poor Traffic to Volume Ratios, yet Their Market Share Is Rising

Cryptocurrency exchanges using the trans-fee mining (TFM) revenue model have, according to available data, poor traffic to volume ratios, meaning a small number of traders see large amounts of crypto change hands on their platforms. Despite using incentivized trading schemes to generate 'fake volume' these exchanges have grown their market share.

According to CryptoCompare’s January 2019 Exchange Review, cryptocurrency exchanges using the controversial mining model have grown to represent 15% of the crypto ecosystem’s trading volume, up from 12%. In January alone they traded $25 billion worth of crypto in the first month of the year.

The number one trans-fee mining exchange was CoinBene, which by itself traded $10 billion. It was followed by ZBG, which traded $6 billion, and by EXX, which traded $5.5 billion. These platforms’ trading volumes have grown, although overall crypto exchange traffic went down.

Per the report, traffic notably dropped 13.5% in January, with spot trading volumes accompanying it with a 12.4% drop. The total amount of unique visitors cryptocurrency exchanges received in January was 10.4 million, down from 12 million in December.

Crypto exchanges' volumes and traffic in January of 2019Source: CryptoCompare Research

While their trading volumes are high (red for TFM exchanges), the amount of traffic their platforms see is noticeably low. Traders on these platforms are incentivized by the revenue model to trade large amounts, in order to be rewarded in tokens.

The controversial revenue model was initially introduced by FCoin, which managed to see an over $5 billion daily trading volume at the time thanks to it. Some called it a “disguised ICO” over its nature. Its incentives may be questionable, as CryptoCompare’s report puts it, grouping it to zero-fee exchanges:

Transaction fee mining exchanges rebate 100% of transition fees in the form of their own exchange tokens. This might give traders an incentive to trade more to receive more tokens which often have valuable features such as voting rights on the platform or a dividend. Both of the above can lead to wash trading.

Although these crypto exchanges have large trading volumes, this doesn’t mean their order books are secure. CryptoCompare analysis from October showed that on TFM exchanges it would take a very small amount of their daily trading volume to see prices drop 10% on their platform.

Specifically, an analysis of CoinBene’s order books showed it would take just 0.3% of its trading volume to see the price of a crypto drop 10% on it. In comparison, it would take over 30% of the daily trading volume exchanges like Kraken and Bitstamp see to see prices drop 10% showing much greater stability in the more established and trusted exchanges.

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Venezuelans File $30M Lawsuit Against "Diamond Backed" Crypto Ponzi Scheme

  • A $30 million lawsuit has been filed against a troubled cryptocurrency that claimed to be backed by diamonds.
  • Over 300 amateur investors were defrauded by the owners of two diamond companies, who attempted to create a cryptocurrency to keep a failed Ponzi scheme running. 

A new lawsuit filed this month has revealed further details about what took place behind the scenes at the troubled cryptocurrency "Argyle Coin."

According to the lawsuit, the entire cryptocurrency project was nothing more than a desperate attempt to keep a pre-existing Ponzi scheme alive and repay investors who were anxiously awaiting their dividends.

The group of Venezuelans behind the lawsuit say that they are among 300 amateur investors who got caught up in the Ponzi scheme, according to Law360.

The alleged masterminds of the scam, Jose Angel Aman, Harold Seigel, and his son Jonathan Seigel, ran two diamond trading firms Natural Diamonds and Eagle Financial. The two companies were connected with Argyle Coin, a cryptocurrency Ponzi scheme which was said to be backed by diamonds.

Natural Diamonds predated Argyle Coin and seems to be where the scam originated. The firm reportedly lured investors to pour money into their operations by overstating their expertise in the diamond industry.

Since 2014, Aman was promising investors a 24% return on their investment within two years through his company Natural Diamonds, having no clue how he was going to fulfill his promises. By 2015, Aman was working with his two accomplices, selling fraudulent investment contracts through Eagle Financial, and using those funds to pay back previous investors.

According to court documents:

“[Eagle Financial] and its principals overstated their experience in the diamond and jewelry businesses to lure investors into trusting [Eagle Financial] and its principals with their investment.”

The lawsuit suggests that the fraudsters used all of the investments that they received paying back previous clients, and never actually did anything with the money that would earn a return. Still, the defendants in the case continued to lie to investors and promise unrealistic returns to their investors.

Then, things became even worse when the men behind the scheme decided to develop a cryptocurrency project to raise funds.

They made very similar promises with Argyle Coin, reportedly telling investors that putting their money into their diamond-backed cryptocurrency was a “risk-free” venture, while once again using that money to back other investors.

Sadly, the investors were left out in the cold when the project never materialized, and the Ponzi scheme came crashing down. This is just the latest in over a dozen lawsuits against the failed crypto project.