Since many cryptocurrency exchanges misreport many metrics, the data aggregator CoinGecko has decided to put an end to this matter and has announced through its official blog this May 13, the ‘confidence index' to report trading volumes. with a healthier approach that includes web traffic data and order books.
Although, as he said at the outset, traditional markets with high volume are highly liquid, the company is quite clear that this is not always the rule in the case of cryptographic exchanges and this is largely due to the lack of regulation that allows these exchange to inflate the volume of operations for unscrupulous purposes.
CoinGecko has already shown in the past to clean up the information in this regard, so that the data shown is as reliable as possible to make appropriate decisions based on tangible and accurate information.
The new rating algorithm called ‘Trust Score' on the company's website was universally implemented in the Exchange Summary and Currency pages as of this Monday, May 13, 2019.
Trust Score is a combined formula that takes into account the volume of operations, web traffic and depth of the order list of exchanges.
Bobby Ong, co-founder of the crypto market aggregator, said the ‘confidence score' will point to ‘combating false volume data in exchanges'.
The publication makes an equivalence of the volumes presented by five popular exchanges such as ZBG, OKEx, Dobitrade, ZB and FCoin, which according to information of these same, occupy the first five places of Volume of operations as reported.
However, CoinGecko when normalizing these volumes according to their algorithm, none of the aforementioned appear in the top 5.
On the other hand, the firm indicates that the normalization of the exchange volumes are added through web traffic by third-party services such as SimilarWeb, which they say is more difficult for exchanges to falsify these volumes.
Regarding the analysis of order books, the site indicates that the new metric to estimate it will be the Bid / Ask Spread and the + / -2% of depth cost, which is based on the capital of USD required to move the book of orders by 2% in any direction.
The intention, they say, is that these metrics combined with the volume of trading data, provides a better overview of the actual liquidity of any pair of trades in an exchange.
On the other hand, the Average Daily Volume of Operations of the User [ADUTV] will be calculated based on the average of 10 exchanges, based on the Bitwise File Management report presented to the SEC.
According to Bitwise, 95% of the exchanges falsify their volume, with the exception of ten exchanges, which CoinGecko is using to calculate its ADUTV.
CoinGecko states that its confidence score algorithm makes it clear that higher volume does not necessarily equate to a healthier order book. Therefore, your ‘Trust Score' is divided into three categories: good (green), regular (orange) and poor (red).
For a future the company has made it clear that it will introduce more metrics to its confidence index to improve its robustness.
Recently, Bitfinex was involved in an $ 850 million cover-up scandal that exposed the false volumes and its inflated price of notable advantage over other exchanges over BTC's price generated great disbelief about the giant exchange's reports.