CoinMarketCap, the by-far largest crypto ranking site, will announce on Monday the 2nd of September 2019 a new ranking methodology.
As commonly known and often highlighted by Autowhale there were many concerns towards the legitimacy of the reported volume of exchanges and therefore also the trading volume of each token and coin.
As of today (September 2, 2019) most of the Top 20 exchanges by volume on CoinMarketCap are probably unknown to 99% of people holding Crypto.
To address these problems CoinMarketCap has introduced some major changes to its ranking guidelines. However, these changes have big implications for currently listed coins and tokens.
Here is what has already changed
CMC already started implementing steps in this direction with some internal ranking changes in July, e.g. a coin/token could no longer enter top 200 if it didn’t meet certain standards as described here:
Right now there are 3 classifications for ranked assets
- Top 200: The asset has a CMC-verified circulating supply and matches CMC`s requirements 10A-10E.
- 201 and beyond: The asset has a CMC-verified circulating supply but does not match CMC`s requirements 10A-10E.
- Unranked assets: Assets that don`t have a verified circulating supply.
Here is a small summary of CMC`s requirements 10A-10E
10A: Sufficiently provided CMC`s submission form
10B: Match CMC`s listing guidelines
10C: Pass CMC`s benchmarks such as Trading volume, Team, Traction, Product, Innovation, …
10D: Comply with CMC`s House rules
10E: Accept CMC`s delisting policy
Here is what will change
First, a bit of background regarding CoinMarketCap`s decision to update their guidelines and ranking algorithms:
We will be releasing new metrics based on liquidity to address the current concerns around inflated volumes.
We recognize the limitations of using solely volume as a metric, and will be actively working to level the playing field with liquidity-based metric.
CoinMarketCap found that currently available solutions on the market are insufficient — Which frankly is true. Right now, there are easy to game solutions.
For example you could exclude exchanges that are associated with inflated volume from the statistics. That might, however, harm innocent projects that are listed on these exchanges.
Another option would be to include other metrics such as web traffic, registered/active users, etc. to the calculation of the volume of an asset/exchange. This though can be gamed as well and is often not really representing the reality. E.g.: An exchange with many users (and/or traffic) can have less real volume than an exchange that has less volume (and/or traffic) but users that trade bigger amounts and therefore generate more real volume.
A method that would take liquidity into consideration would be to measure the liquidity within a certain spread. Anyone who knows that spread, though, can game the measurement by having a bot that adjusts to that spread.
Autowhale agrees with CoinMarketCap that these metrics are not sufficient and must be replaced with a score that is mainly focused on liquidity.
This is also what CoinMarketCap thinks and therefore they will release on November 12, 2019 a metric that will open a fair level playing field for all listed assets and an objective data-driven benchmark.
Future Outlook
These changes by CoinMarketCap are definitely a big step towards more mature altcoin markets. Fake volume doesn`t benefit anyone, they are just a simple number that has no impact on anything, whatsoever.
By shifting focus on real liquidity companies have now the chance to be a first-mover to bring their tokens a huge step closer towards maturity.
We, at Autowhale, welcome everyone who agrees that this shift is needed. Together with you, we will figure out the perfect fit for providing liquidity with our market making solution.
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Disclaimer: None of the above shall be considered investment/financial advice or advice on trading techniques, models, algorithms, or any other schemes.
