A recently released report on cryptocurrency exchanges asserting widespread falsification has gotten a lot of attention this week. The report claims that billions of dollars' worth of volume reported by exchanges is fake, likely the result of wash trading. The report also ranked 131 exchanges in order of most to least honest.
Though the report's conclusions seem plausible enough, that a largely unregulated industry is rife with unethical behavior, details about the organization that produced the report are hard to come by.
The Blockchain Transparency Institute (BTI) appears to be a recently formed organization. The earliest message on its Twitter page (created this month) is from August 26, announcing the release of the report. Its website is still under construction.
Ironic for an organization claiming it's dedicated to transparency, BTI's website lists no members – there is not a single individual's name, nor much indication of the members' backgrounds on the site. The description of the organization, in its entirety, states, "We are a group of blockchain data researchers looking for more honesty and transparency in the crypto sphere."
According to BTI's website, their work is partially built on the research of Sylvain Ribes. Ribes, however, is not actually a researcher (and he specifically states he is not a statistician). On his Twitter page, he identifies himself as a "crypto-trader and investor." He is also a former professional poker player. The research in question, on which BTI has based its work, is a single Medium post, called "Chasing fake volume: a crypto-plague," that Ribes produced in March.
That piece analyzed crypto exchanges using Ribes' understanding of "slippage," which he describes as a measure of "the percentage change between the observed mid-spread price and the lowest price I had to consent to to [sic] sell the asset." Though, it's notable that he also admits to using the term incorrectly.
Ribes claimed he intended to study cryptocurrency liquidity, but after gathering the necessary data, he noticed some patterns that, to him, indicated massive wash trading. He concluded that more than $3 billion worth of daily trading volume was being faked.
BTI used Ribes' research to establish a "base set of exchanges that appear to be doing accurate volume reporting." It then used website daily visit statistics of exchange sites to make some predictions about how exchanges behave: "Typical per user volume numbers for an exchange with x number of unique daily visitors was applied to all suspect exchanges to determine a more accurate per user volume figure."
Essentially, this means BTI determined a typical volume per user (across all trusted exchanges). It then compared this number to the volumes the exchanges themselves were reporting (divided by their daily users). While the exchanges believed to be legitimate would have numbers between $5,000 and $8,000 per visitor each day, others had numbers in the hundreds of thousands.
Apparently, this report is only the first in what is intended to be an ongoing series:
"These are estimates and as we receive more data from exchanges our September rankings will really hone [sic] in on an even more accurate count. Any exchange is welcome to contact us and provide data for a more accurate ranking in September. Transparency is key."
ETHNews reached out to BTI via email (though the organization provides no contact info on its website, there is an email submission form), and received a response.
A representative from BTI named Luca (no last name provided) claimed the organization consists of eight researchers from the fields of finance, science, and healthcare. Transparency apparently having its limits, Luca declined to provide names of the members due to the "sensitive nature of exposing large amounts of potential fraud." He (or she) wrote:
"All of our data will be posted publicly, there will be no hidden formula to our rankings and any data an exchange shares with us will be disclosed and verified by us through read only access."
Luca asserted the organization is not affiliated with any exchanges, is not taking outside funding, and will never accept advertising, implying that the researchers are working on a volunteer basis. "All of our researchers have agreed to do this for the good of the space," Luca wrote.