Wash trading and fake volume reporting is rife in the crypto world, leaving many people not knowing whether exchanges are trustworthy or not. In a bid to help stamp out wash trading and fake volume statistics, CoinGecko has launched its new feature called Trust Score. Trust Score takes a number of metrics to give an exchange and subsequent trading pairs a rating out of 10 based on liquidity and a number of other factors. However, Trust Score looks like it could be potentially flawed. Can we still rely on exchanges to tell us the truth and data aggregators to put in the hard work to filter out the lies?
Fake Volumes Are Still as Prevalent as Ever
Unfortunately, crypto exchanges still feel the need to lie about their trade volumes – perhaps it has something to do with their ego? People seem to feel more comfortable trading with an exchange that has a large amount of volume as they feel there will be more liquidity – meaning orders fill faster. However, due to most exchanges faking this volume, liquidity isn’t easy to find on some exchanges. This quickly becomes an issue for crypto traders looking to actively trade or quickly close a trade. So, while faking volume isn’t necessarily the end of the world, it’s damaging the potential for crypto traders. Anyway, the people who boast about how large something is tend to own something that’s quite the opposite. Use this principle for picking your next crypto exchange based on trade volume!
How is CoinGecko Creating Trust Score?
For CoinGecko to create its trust score, it takes a number of different metrics, squeezes all of the data and converts it into a score. However, some of the metrics it takes isn’t necessarily related to the goal of Trust Score. One metric it takes is website traffic. Now, you would presume a site with more traffic will naturally have a large amount of transactions and therefore a lot of liquidity. However, if you have 1,000 unique website visitors per day, 90 just open their account to check their balance while 10 of them trade 5btc per day, then you only have a daily volume of 50btc. A smaller exchange with 100 unique website visitors per day could have 50 users trading 5btc on the day, giving it a daily volume of 250btc. Therefore, using website visitors as part of this metric is rather flawed. In short, more traffic doesn’t mean more liquidity.
It Does Help – Slightly
Based on the other metrics available, Trust Score does give a pretty nice view into the liquidity of exchanges and certain trading pairs. This gives users the ability to quickly check which exchange has the best liquidity for the pairs they like to trade – meaning less time is wasted.
In short, Trust Score from CoinGecko might not be the solution to fake volume reporting, but it’s the first step that is needed from data aggregators towards stamping out this practice.