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“Centralized exchanges have damaged confidence in the cryptocurrency industry”

Important facts:
  • The Kaiko manager said there are still many exchanges that are overstating their volumes.

  • According to the expert, the US is cracking down on wash trading.

Clara Medalie, director of research at analytics firm Kaiko, stated that “centralized exchanges have damaged confidence in the cryptocurrency industry.” He said so while attending the Ethereum Community Conference (EthCC) taking place this week in Paris, France.

The specialist referred specially on What happened to the FTX exchange in 2022? and other platforms that “enabled bad activity and behavior and were also the perpetrators of bad practices.”

FTX, one of the largest bitcoin (BTC) and cryptocurrency exchanges on the market, filed for bankruptcy in November last year amid allegations of embezzling user funds, CriptoNoticias reported.

According to Medalie, this is one of the negative practices exhibited by some exchanges This is what is known as “wash trading” or incorrect volume, which also undermines user confidence in cryptocurrencies, he added. This is a type of market manipulation in which a trader essentially trades against themselves on a platform. The goal is to really inflate the numbers to show either an exchange or a cryptocurrency has large market volumes.

Clara Medalie, Director of Research at Kaiko, spoke about the negative aspects of some exchanges’ practices. Source: Ethereum Community Conference (EthCC).

The executive noted that it’s “really difficult to detect market manipulation across all platforms because it’s ultimately the exchange’s responsibility to do so.” This is happening, he explained, because exchanges “still don’t have the right measures in place to detect market manipulation.” It is also promoted by sites that rank exchanges by trading volume.”

Exactly these websites They are the ones that new investors trust They believed their data, Medalie said. Although he mentions them to us, the most popular portals for exchange and cryptocurrency information include CoinMarketCap and CoinGecko. However, from Kaiko, they managed to spot the wrong volume on some exchanges, the specialist revealed.

Kaiko ranked 20 cryptocurrency exchanges, all centralized, on volume to market depth ratio and could notice outliers in one of them. The company links to an exchange called Bitforex. On this platform, he observed “many different trading pairs as he examined the data and compared it to Coinbase.” There they found that there were “outliers” and found “large differences in the appearance of transactions, which does not reflect natural market behavior,” Medalie said.

Kaiko’s work on this last aspect aligns with the testimony of Célim Starck, CEO of Nefture, a firm focused on blockchain security. During his speech at the Ethereum Community Conference, he expressed his disagreement that users are the only ones who should be responsible for doing “their own research” on the projects they want to invest in.

Kaiko says he found a way to spot the erratic methods of some centralized exchanges, which can be difficult to spot at first glance, especially for those who are new to investing in crypto assets.

Regarding regulatory action against these types of practices, Medalie pointed out that “there is a new reality in the cryptocurrency industry where regulators in the United States are taking strong action against wash trading.”

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