With exchanges in the crosshairs as the FTX fiasco continues, new research suggests that nearly three in four transactions on unregulated exchanges are fake.
The National Bureau of Economic Research (NBER) has recently published a working paper entitled “Crypto Wash Trading”. Using statistical and behavioral patterns to determine which transactions were legitimate or not, the paper studied 29 unregulated exchanges and concluded that, on average, more than 70% of the volume within the platforms is fake trading.
The researchers found that some exchanges’ fake trading volume reaches 80% of the total trading volume. The researchers wrote that on twelve “tier 2 exchanges”, fake trades amounted to almost 80% of the total trading volume. The researchers wrote:
“These estimates translate to false trades of more than $4.5 trillion in spot markets and more than $1.5 trillion in derivatives markets in the first quarter of 2020 alone.”
According to the researchers, there are short-term incentives to resort to fake trades. The study suggests that fake transactions often affect exchange rankings on data and statistics websites such as CoinMarketCap. In addition, fake transactions also affect cryptocurrency prices on exchanges in the short term.
Meanwhile, the FTX debacle continues to gain attention, as Alameda Research-linked wallets have shown movement, funneling around $1.7 million in assets through cryptocurrency mixers. The moves came days after former FTX CEO Sam Bankman-Fried was released on $250 million bail.
As the FTX crash damaged people’s trust in centralized exchanges (CEXs), executives working on CEXs have expressed their feelings about How could they regain the trust of users? On Nov. 25, Cointelegraph spoke with senior executives from several cryptocurrency exchanges and found that many are convinced that the industry can still recover after everything that has happened with FTX.
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