CoinMarketCap's New Liquidity Ranking System

CoinMarketCap Sets a New Standard

In an effort to shake things up in the crypto world, CoinMarketCap (CMC)—the go-to hub for all things cryptocurrency—has announced that, on November 12, 2019, they’ll be implementing a brand new liquidity ranking system. This major development was revealed during the first-ever virtual roundtable of the Data Accountability & Transparency Alliance (DATA), which was convened on August 27, 2019. Founded in May of that year, DATA includes crypto heavyweights like Binance, Bittrex, and Huobi, joining forces to bring some clarity to the chaotic crypto space.

The Liquidity Metric Dilemma

So, why the switch to liquidity metrics? CMC pointed out the inherent issues with wash trading—a nuanced form of market manipulation that inflates trading volume without actual transactions. According to their presentation, liquidity isn’t just a pretty number; it’s a constantly shifting creature that can be hard to define and measure. CMC’s goal? To ensure that their rankings aren’t just a playground for the crafty traders who game the system. They’re aiming for a setup that promotes fairness and accuracy in the rankings.

Redesigning the Volume Metric

Keeping the volume metric could still play a role, but CMC emphasized the need for a redesign. This rework would help combat the tricks some exchanges have pulled in the past. Imagine a ranking system that reflects real trading activity and provides a level playing field for exchanges. Now, that sounds like a dream!

The Transparency Move: Self-Reporting Data

Another exciting development discussed during the DATA roundtable is the concept of incentivizing exchanges to disclose more data about their operations. CMC proposed a system of ‘badges’ for exchanges, similar to what you might find in LinkedIn’s professional social network. Exchanges could earn badges for revealing details such as KYC practices, physical office locations, and shared order books. A little bit of friendly competition and recognition could just be the motivation exchanges need to share important transparency info!

Creating Accountability

Ben O’Neill of Messari chimed in on another critical issue—keeping exchanges in check. He noted that no exchanges are really delisting “bad projects,” save for a couple of notable instances. The alliance needs to come up with incentives that not only keep projects honest but also impose real consequences for those that mislead or misrepresent their offerings.

The Path Ahead for CMC and DATA

Looking back, in May 2019, CMC declared they would start removing exchanges that failed to provide mandatory data—an important move that shows CMC’s commitment to accountability. With the emergence of DATA, formed after high-profile reports revealing extensive wash trading, we’re witnessing a push for better practices. Whether it’ll succeed remains to be seen, but for traders, a more transparent market can only be a good thing.