Last year was an incredibly difficult period for the cryptocurrency market, with a rapid decline in the price of Bitcoin and growing fears about crypto scams. Many are hoping for a turnaround in 2019, but with reports of fake trading volumes on the rise, the crypto market has a long way to go before it can prove its credibility.
This is something that the newly-created Data Accountability and Transparency Alliance (DATA) hopes to address. By focusing on cryptocurrency data, it hopes to promote greater transparency, accountability, and disclosure from projects in the crypto space.
What is DATA?
Launched by crypto market intelligence platform CoinMarketCap, DATA places strict compliance demands on exchanges who want to be included in CoinMarketCap’s calculations. If they fail to provide mandatory cryptocurrency data, the exchanges will be removed – thus losing one of their main sources of referral traffic.
The overarching objectives of DATA are to review, align, and enhance reporting standards across the industry and identify gaps and propose strategies to enhance data accountability and transparency.
CoinMarketCap believes that by providing additional data points, its users will be empowered to make more informed decisions, while projects will be able to differentiate themselves through enhanced disclosures.
More than 12 leading crypto exchanges are already part of DATA, including Binance, Bittrex, OKEx, Huobi, Liquid, UpBit, IDEX, OceanEX, Gate.io, KuCoin, HitBTC, and Bitfinex.
Why is DATA needed?
DATA has been created following a series of claims that some exchanges are faking their trading volumes in order to get a high ranking on CoinMarketCap.
An investigation by The Tie, a crypto trading information portal, looked at average website visits versus reported trading volume and compared the figures with those at reputable exchanges. It found that 87% of the reported trading volume at crypto exchanges could be false. In addition, 59% of exchanges had 10 times greater reported volume than was expected.
In a separate study, cryptocurrency index fund provider Bitwise Asset Management claimed that 95% of all reported Bitcoin trading volume is faked.
Recently, CoinMarketCap removed a group of Korean cryptocurrency exchanges from its price calculations, saying they showed “extreme divergence in prices from the rest of the world and limited arbitrage opportunity”. This resulted in a sharp drop in CoinMarketCap’s measurement of nearly all cryptocurrencies.
DATA’s objectives
DATA’s transparency initiative aims to address the issue surrounding “fake volumes” of exchanges.
The DATA exchange partners currently on board have committed to providing mandatory data and self-reported information on an ongoing basis.
In phase one, all exchanges will have to share live trading data and live order book data via API by June 14 2019. These cryptocurrency data points will enable analyses to determine measures such as liquidity, order book depth, spreads, and other meaningful measures. Any exchange that does not provide this mandatory data will be excluded from all price and adjusted volume calculations on CoinMarketCap.
For phase two of the project, CoinMarketCap is planning to grow the types of cryptocurrency data available for analysis and enable filtering to allow deeper analyses and views into the exchanges’ operations. This includes proof of solvency/reserves/liabilities, more granular trading data at the market-pair level, live wallet status, and historical trade data.
In phase three, CoinMarketCap will be introducing self-reporting channels for projects to provide additional information. This will be purely voluntary reporting, however the level to which each project self-reports will be factored into its ranking.
“This is in line with DATA’s intent to incentivise greater levels of disclosure and transparency without the need for censorship or arbitrary judgment calls,” CoinMarketCap explains in a blog.
Increasing transparency
The launch of DATA could provide a much-needed boost to the levels of transparency of crypto exchanges. Projects that are willing to disclose information are more likely to have honest intentions and behaviour, whereas if a project omits information it could spark warnings about its status and prompt users to dig deeper.
There is still a lot more to be done – CoinMarketCap admits collecting cryptocurrency data is just the first step. As the data set grows, more analyses can be run, enabling the introduction of new, meaningful metrics that empower users to make more informed decisions.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.