In an interview with Cointelegraph, Binance CEO Changpeng Zhao discussed how some cryptocurrency exchanges are engaging in manipulation of their volume statistics to give traders the impression they have more liquidity and are more popular than they really are.
This question was asked to Changpeng Zhao in response to a recent study that found evidence through slippage analysis that OKEx was inflating its volume statistics. Cryptocurrency trader Sylvain Ribes sold USD 50,000 of cryptocurrency on Bitfinex, Kraken, GDAX, and OKEx, and found that the order book became unstable on OKEx even from this relatively small sell. Prices declined on OKEx by over 4%, proving low liquidity and lack of support in the order book.
Zhao says that some cryptocurrency exchanges report volumes twice: if someone buys crypto, an exchange might count that as both a buy and a sell order, effectively doubling the volume of the trade, even though only half the volume was transacted. Binance would only report the transaction value as volume, according to Zhao.
A more fraudulent method of manipulating volume statistics is wash trading. This can be detected when price is moving significantly at low volumes, but stable at high volumes. Essentially, two accounts are set up to buy and sell with each other just to generate volume.
A common reason for wash trading is that some exchanges require a cryptocurrency’s team to guarantee a certain amount of volume to stay listed, so some cryptocurrency teams hire a ‘market maker’ that generates fake volume by trading with themselves. Zhao says Binance does not ask cryptocurrency teams to guarantee trading volume, to avoid wash trading.
According to Zhao, a method to detect if an exchange is being truthful about volume is by comparing the trading volume to website traffic. He says that many of the top 10 cryptocurrency exchanges have similar or higher volume than Binance, but only 10% of website traffic, indicating the possibility of volume manipulation.
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