On-chain volume refers to the volume of cryptocurrency that users move into an exchange from the outside. ![]() All of these transactions occur off-chain and are recorded in exchanges’ order books and reported via APIs, which is why they’re easy to fake. We use the term trade volume to refer to the volume of intra-exchange trading that exchanges self-report. By comparing the amounts of cryptocurrency that enter exchanges via on-chain transactions to the off-chain trade volumes exchanges self-report, we can spot the differences between organic trading activity and instances of probable inflation. The good news is that blockchain analysis can help us see which cryptocurrency exchanges are most likely faking trade volumes. ![]() Faked trade volumes bring bad press for the industry and sow doubt amongst potential investors. Trade volume increases also help exchanges climb the ranks on public industry data aggregators like CoinMarketCap, giving them greater visibility.īut all this comes at a cost to the cryptocurrency ecosystem as a whole. And the incentives to fake are clear: Higher trading volume suggests greater liquidity and market activity, which is useful for drawing in new users and attracting new coins looking to list. Trading on exchanges largely happens off-chain and is recorded in exchanges’ order books, which means that the volumes they self-report are easily faked or subject to wash trading. The scale of the problem is huge, with Bitwise Asset Management claiming earlier this year that as much as 95% of all reported trade volume is fake. But the widespread issue of faked trade volumes has created trust issues among exchanges, their users, and the rest of the industry - not to mention the financial institutions and regulators who still eye cryptocurrency with caution. The vast majority of all blockchain transactions entail cryptocurrency moving to and from exchanges, and they function as the most common on-ramp to cryptocurrency for first-time investors. In many ways, exchanges are the face of the cryptocurrency industry.
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