Binance’s CZ: “It’s Not CoinMarketCap’s Fault”

Hi everyone, my name is Giovanni and today
we are going to talk about a big problem in the crypto space: fake trading volumes. Last week, Index fund provider Bitwise claimed
that about 95% of Bitcoin exchange trading volume listed on CoinMarketCap.com
is actually fake. That means that out of the $11 billion reported volume
on CoinMarketCap only around $270 million is real. Apparently, a number of unregulated or poorly
regulated exchanges have been faking their volumes so to appear high in the rankings,
attract more traders on their platforms and charge high fees to customers who want to
list their coins on the exchanges. Just to remind you, CMC is among the top 500
most visited sites in the world and has a huge impact on the market
and on traders decisions.

So, no wonder CoinMarketCap has been criticized
for failing to delist exchanges that are suspected of wash trading and market manipulation. The good thing is that this time CMC acknowledged
the problem and announced it will implement some new features in order to improve
transparency on their website. We asked CoinMarketCap what
measures will be taken exactly. They replied in an e-mail saying that:
The best way to mitigate the issue is to over-provide on data and let users make their own informed
choices about what to do with that data. Among the additional information that they
plan to integrate will be: “liquidity measures, cold/hot wallet balances, and traffic data”. The fake volume report published by Bitwise
shows similar results to previous ones like the one published by Crypto Integrity and
crypto trading platform The TIE. We reached out to Joshua Frank,
co-founder at the TIE, and asked him about their
own report on fake volumes. So, Joshua, can you tell us a bit about the
methodology you used to detect fake trading? Yeah, I think that generally the conclusions,
that everybody came to, were pretty similar.

I think it was a lot of the same exchanges. So, if you take for example our methodology
which was really looking at exchanges reported trading volume versus website viewership
from a company called Similar Web, the original purpose of the research was actually an internal
product that we were doing. We were working on refining our pricing feed
on our site and we were thinking internally: "Hey, how do we make sure that we're only
showing prices on exchanges that have liquidity?" So, when we began doing it we just made our
own internal spreadsheet and we were like: "What is the best way to identify whether
or not an exchange has liquidity?" And a pretty quick way to do it is to just
compare the viewership that some of these sites have versus what they're reporting as
their trading volume.

And what we found very quickly was it just
didn't make any sense. So, for example, some of these exchanges,
for each view they had, were reporting $50 in trading volume, while others were reporting
$400,000 in trading volume. And we were very quickly just like: this just
doesn't make sense, right? How could it be that one exchange has $50
in volume per every user that comes to site, another one has $400,000 in volume? So, we basically just made it into an Excel
spreadsheet, moved it to Google Drive so that other people could have access to it, and
decided to make all the data available, so that people could draw their own conclusions. One example or something what we did – we
took the weighted average trading volume between some of the major exchanges and some of the
exchanges, that we identified as being real players in the market, and basically created
that as a basis for comparing other exchanges. And we found that between those exchanges
there were 500 and some odd dollars in trading volume, averaging out per website visit and use that as
kind of a comparable for the other exchanges.

And as a result we found that about 87% of
volume seemed to potentially be suspicious or inflated. And that really kind of coincided with a lot
of the research that other places have done. And what I found is a lot of the exchanges
actually want to be more transparent with us, they want us to kind of verify or validate
that what they're doing is real. We just think that's been interesting as well,
as kind of a validation that a lot of what we reported out is kind of real because a
lot of the exchanges that we said had more suspect or questionable volume haven't been
reaching out in the same capacity at all.

That’s interesting. So what would be your tips to help traders
detect fake trading volumes? One interesting way to do it, this is the
start, is we put out a free Google Sheet which you can track on our Twitter account, it's
available there, and that shows just the website viewership compared to trading volume. I think it's a good starting place, right. If you see an exchange that's reporting $400,000
in trading volume per view, it's probably not occurring. That's probably not real. That's an interesting way to do it. Also look at the trade history, if you see
that the trade history is 3, 4, 5, 6, 7 Bitcoin being traded at a time – that's not happening. The average trade size on a lot of these exchanges
isn't $20,000-30,000 a trade. Go look at an order book of an exchange that
you think is real, an exchange that we identified not having suspect volume, you'll see that
a lot of the trade sizes are point one, point two Bitcoin or whatever the trading pair is,
they're much smaller, they're different. That's a good way to look at it.

Thank you Joshua. Actually, not all exchanges have dubious volumes. The reports pointed to a number of regulated
exchanges that proved to be clean. One of them is Binance, among the biggest
exchanges in the world. We reached out to CZ, CEO at Binance, to ask
him what he thinks of this issue. So CZ, what do you think is the main takeaway
we can get from these reports? From our perspective, I think most of the
same conclusions you saw was that the Binance trading volumes is very solid, is very real.

So I think basically in the industry the more
reports like this the better, the more transparency, the more data there is the better. It's not so much CoinMarketCap’s fault,
everyone tried to blame on them. But CoinMarketCap is a very simple reporting
mechanism where every exchange reports their own data to them and they just show it. On Twitter some people blamed you for not
taking a strong enough stance on this issue. What role, if any, should
Binance play in all this? I think we do have a role to play, but I don't
like the way people assume how we should behave and not behave, especially if people assume
that we should have a fight with CoinMarketCap on Twitter.

That's just not what we do. So, we do work very closely with CoinMarketCap
guys and we know the team quite well, and we collectively all want to solve this issue. It's not like we're not working on it. But you just call in saying like:
"Hey, I think you should work a bit harder, you should pick a fight with the other guys,
with your friends on Twitter." I mean that's kind of childish.

So, I don't like that. But I think in general
we do have a role to play. And number one, I think that's all the reports
I've shown – Binance is a very solid volume exchange. So, number one, we don't exhibit any bad behaviors. We do try to encourage
transparency in the industry. One of the other things we cannot really do
very well is, as an exchange, we can't really be attacking the other exchanges. I think that's actually negative
for the industry overall. In your opinion, how can
CoinMarketCap solve this issue? We have given a number of people,
a number of ideas. For example, most exchanges
depend on CoinMarketCap to give them referral traffic
to a very large extent. And if they have any penalties then they would
delist the exchange from their site for a period of time. That would have a lot of pressure on the exchanges. But whether to do it or not and how they would
do it is really up to them, because a lot of the concepts are very simple, but when
you actually come down to implementations it's actually a very tricky.

It's the same thing. When we delist a project from our trading
site, the projects fight back and they will go on social media, complain. So you heard it both ways. So it's not a simple problem to solve. But I think, as the industry, we do need to
work hard to solve this problem which is to increase transparency,
have real data, real volumes, etc. Thanks a lot CZ, we also hope that with more
and more legit players like Binance taking the lead, the crypto space will become more
transparent and safer for everyone. So, guys, what do you think? How much responsibility should CoinMarketCap
take for fake trading volumes? Let us know in the comments. Thanks for watching and don’t forget to
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